Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Muted as Markets Shrug Off Virus Scare
The Pound Sterling New Zealand Dollar (GBP/NZD) exchange rate remained largely flat on Wednesday. The pairing is currently trading at around NZ$1.9807.
The New Zealand Dollar remained under pressure on Tuesday as investors feared the outbreak of coronavirus in China could put further pressure on the Chinese economy. This would weigh on the risk-sensitive ‘Kiwi’.
However, markets seem to have shrugged off yesterday’s heightened fears, stopping NZD sliding further against GBP.
Chinese officials have now confirmed 440 case of the virus and the death toll currently stands at 9, with a recent report of a case in the United States.
China’s upcoming Lunar New Year celebrations have increased fears that the virus will spread further.
However, with little information available currently, markets are unlikely to see dramatic movement, commenting on this, Sumitomo Mitsui Trust Bank’s market economist, Ayako Sera said:
‘This is certainly something companies need to think about for their contingency planning. But for financial markets, there isn’t much to make a thorough case for trading in either direction given the lack of further information.’
Sterling (GBP) Muted despite Strong UK Job Growth
Tuesday saw Sterling rise against the New Zealand Dollar after the release of better-than-expected UK labour market data.
British job growth was the strongest in close to a year during the three months to November, with the number in work increasing by 208,000.
This provided GBP with an upswing of support as this weakens the case for a Bank of England (BoE) interest rate cut this month.
Pound (GBP) Flat as Investors Await Friday’s PMI Data
Three BoE policymakers have previously noted that further stimulus will be needed, although analysts expect the bank will hold off on slashing rates.
Commenting on the chance of a rate cut, Jordan Rochester, Nomura analyst stated:
‘Risk reward is not in favour of chasing GBP lower into a rate cut: With the BoE rate cut priced with a 66% chance, the risk reward is that they delay their decision until later this year to evaluate how the data and fiscal stimulus plays out.’
Investors are now looking ahead to Friday’s PMI data which could swing the case for a rate cut in one way or another.
Commenting on this, Kallum Pickering, senior economist at Berenberg stated:
‘I struggle to make a strong case for a January rate cut.
‘Much of the data, which is weak, is pre-election so what will matter more to the Bank of England is the PMI data on Friday.’
Pound New Zealand Dollar Outlook: NZ Inflation in Focus
Looking ahead to Thursday evening, the New Zealand Dollar (NZD) could edge up against the Pound (GBP) following the release of inflation data.
While New Zealand’s inflation is expected to increase to 1.8%, near the Reserve Bank of New Zealand’s (RBNZ) target, if it moves close to the target, the ‘Kiwi’ will rise.
However, markets are also awaiting key Australian labour market data which will be a key factor in whether or not the Reserve Bank of Australia (RBA) is going to cut rates in February.
If Aussie employment data disappoints and increases the chance of an RBA rate cut, NZD is likely to suffer losses, sending the Pound New Zealand Dollar (GBP/NZD) exchange rate higher at the end of the week.