Pound to New Zealand Dollar Exchange Rate Slumps Despite Strongest UK Growth in Over a Year
Investors sold the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate on Friday, despite news that Britain’s growth rate had reached its best levels since late-2016. This was due to a strong New Zealand Dollar (NZD) as well as weak UK business investment data.
Since opening this week at the level of 1.9488, GBP/NZD briefly jumped to trade near a high of 1.9657 before plunging in the second half of the week.
GBP/NZD has fallen over three cents since Wednesday. On Friday, GBP/NZD trended near its worst levels in two months, 1.9288.
Despite some solid UK growth data today, the Pound (GBP) was sold as Brexit fears returned. A lack of major Brexit developments as well as some concerning UK business investment data caused Brexit uncertainty to keep pressure on Sterling.
Pound (GBP) Exchange Rates Sold as Data and Lack of Brexit Developments Cause Concern
At the beginning of the week, investors bought the Pound amid hopes that a formal UK-EU Brexit deal could be formed before the end of November.
However, while rumours persist that a deal could be finalised soon, there have been no solid developments and this has limited market appetite for the Pound.
On top of Brexit uncertainties, the latest notable UK data continued to indicate that Brexit uncertainties were having a stronger effect on Britain’s economy and the economic outlook going forward.
The European Commission (EC) forecast that the UK would have among the worst growth in the EU in 2019, though the UK will technically be leaving the bloc in March.
Friday’s UK Gross Domestic Product (GDP) growth projections for Q3 largely met expectations, showing that the UK economy actually had its best quarter for growth since late-2016.
However, most of the quarter’s performance was due to strong consumer activity in July as a result of the extended period of hot weather, as well as the English football team’s good performance in the World Cup.
Friday’s other UK data was more concerning. Q3 business investment projections saw major contractions in both quarterly and yearly prints, showing that businesses were majorly dialling down activity as Brexit uncertainties worsened and Brexit day drew nearer.
New Zealand Dollar (NZD) Exchange Rates Benefit from Strong New Zealand Data
The New Zealand Dollar is on track to be one of this week’s best performing major currencies, as it finds support in a new rise in demand for risk-correlated currencies, as well as domestic New Zealand news.
Following the results of 2018’s US Mid-Term Elections, US President Donald Trump’s ability to smoothly pass fiscal policy legislation was perceived to have weakened.
As a result, investors became less hesitant to take risks, as focus on the volatility of US markets lightened.
Domestically, New Zealand Dollar investors were highly impressed by New Zealand’s Q3 job market report, published during Wednesday’s Asian session.
New Zealand employment jumped 1.1% rather than remaining at 0.5%, while the key unemployment rate unexpectedly improved from 4.4% to 3.9%.
Due to this report and some other strong recent New Zealand data, the Reserve Bank of New Zealand (RBNZ) took a more neutral stance during its November policy decision on Thursday.
Markets had previously been speculating that the RBNZ could cut New Zealand interest rates in the near future, but due to the recent strong data the bank’s caution eased and those bets faded.
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Investors Anticipate Brexit Developments
While some major UK ecostats will be published next week, unless they are highly impressive they are more likely to weaken the Pound to New Zealand Dollar (GBP/NZD) exchange rate than to boost it.
Until a UK-EU Brexit deal is formally agreed, there are too many uncertainties in the Pound outlook capping its potential for gains.
In the event that a UK-EU Brexit deal is agreed though, Sterling would see a surge in demand and easily regain its recent losses against the New Zealand Dollar, likely climbing even higher.
On the other hand, if there are no notable Brexit developments, officials are likely to ramp up preparations for a potential ‘no-deal Brexit’.
Meanwhile, New Zealand Dollar investors will be focused on potential shifts in risk-sentiment, due to a lack of notable New Zealand data besides Friday’s New Zealand business PMI.
Stronger risk-sentiment will lead to a stronger NZD, but if investors become hungrier for safe havens the New Zealand Dollar will weaken.
Next week’s upcoming UK data includes job market stats, inflation results and retail sales data which may also have some influence on the Pound to New Zealand Dollar (GBP/NZD) exchange rate.