Improved NZ Food Price Index Extends Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Downtrend
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate extended its losses further in the wake of a better-than-expected New Zealand food price index.
As prices surged 1% on the month in January, reversing the previous month’s contraction, this encouraged greater confidence in the outlook of the New Zealand economy.
This uptick in food prices suggests that inflationary pressure is picking up, something which is likely to encourage the Reserve Bank of New Zealand (RBNZ) to maintain an optimistic outlook.
In the wake of Wednesday’s unexpectedly positive RBNZ policy meeting this helped the New Zealand Dollar (NZD) to continue pushing higher against its rivals, hitting a one-month high against Pound Sterling (GBP).
With the odds of a RBNZ interest rate cut appearing to fade further NZD exchange rates maintained their bullish momentum on Thursday morning.
Brexit Tensions Keep Pound Sterling (GBP) Under Pressure
Demand for the Pound remained generally muted ahead of the latest parliamentary vote on Brexit, with markets seeing little chance of the impasse over the Irish border issue breaking.
While the next ‘meaningful vote’ on Brexit has been pushed back, awaiting fresh negotiations between Theresa May and EU leaders, this could still move GBP exchange rates.
Signs that MPs remain prepared to vote against Theresa May’s deal would fuel fears of a potential no-deal Brexit, diminishing the appeal of the Pound.
The continued contraction of the RICS house price balance also put pressure on the GBP/NZD exchange rate, with the UK housing market showing fresh evidence of weakness.
Confidence in the Pound could pick up ahead of the weekend, however, if January’s UK retail sales data picks up as forecast.
After the sharp contraction in sales on the month in December a solid rebound would suggest that consumers are shrugging off Brexit-based uncertainty once again.
New Zealand Dollar (NZD) Exchange Rate Gains Vulnerable Ahead of Manufacturing PMI
The New Zealand Dollar may struggle to hold onto its gains for long, however, if January’s manufacturing PMI disappoints.
Any significant slowdown within the manufacturing sector could undermine confidence in the strength of the New Zealand economy, putting NZD exchange rates on the back foot.
With the global economy expected to lose further momentum in 2019 the New Zealand economy remains vulnerable to weakness.
However, another strong monthly reading from the manufacturing PMI could see the New Zealand Dollar extending its uptrend on Friday.
As long as the PMI remains firmly within expansion territory the GBP/NZD exchange rate is likely to remain on a weaker footing.
Developments in the US-China trade dispute may also offer encouragement to the New Zealand Dollar, especially if the two sides move closer to a deal.
If the US agrees to extend the deadline for a deal, pushing back the prospect of increased US tariffs on Chinese goods, this could give the risk-sensitive New Zealand Dollar an additional boost.