Pound to New Zealand Dollar Exchange Rate Recovers from Lows as Trade Jitters Worsen
Despite high bets that the Bank of England (BoE) will hike UK interest rates this week, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate only advanced on Wednesday due to weakness in the New Zealand Dollar (NZD).
GBP/NZD opened this week at the level of 1.9304 but tumbled to a low of 1.9224 due to a lack of fresh demand for Sterling (GBP). This was the lowest GBP/NZD level in a fortnight.
However, on Wednesday morning, GBP/NZD recovered and trended nearer the week’s opening levels again, as concerns regarding US-China trade spats worsened again.
Mixed signals from the US White House regarding its trade stances on China have left risky trade-correlated currencies, like the New Zealand Dollar, less appealing to markets.
Still, while the Bank of England is expected to hike UK interest rates tomorrow, the Pound’s gains are limited, as the bank is not expected to be surprisingly hawkish about Britain’s economic outlook either.
Pound (GBP) Exchange Rates Limited Despite Bank of England (BoE) Expectations
Markets are now betting around a 90% chance that the Bank of England (BoE) will hike UK interest rates during its August monetary policy decision on Thursday, but this has done little to offer the embattled Pound a sustained boost.
As the Bank of England is already expected to hike UK interest rates, a rate hike would be unsurprising to investors.
Investors are currently more concerned about how the ongoing Brexit process is impacting UK businesses, and how Britain’s political and economic outlooks could continue to be negatively impacted – as a ‘no deal’ Brexit still looks possible.
This week’s UK data hasn’t been particularly supportive thus far either. Tuesday saw the publication of Britain’s July consumer confidence results from GfK, which unexpectedly worsened from -9 to -10 despite being forecast to remain on hold.
As a result, broad uncertainties about the Brexit process continue to weigh heavily on Sterling.
New Zealand Dollar (NZD) Exchange Rates Weaken as Global Trade Jitters Flare Up
As New Zealand is a trade-heavy economy which enjoys strong trade ties with both the US and China, the worsening possibility of a full blown trade war between the US and China has left investors hesitant to buy the risky trade-correlated New Zealand Dollar.
While it was briefly reported during Wednesday’s Asian session that the White House was looking to begin fresh trade talks with China, US President Donald Trump indicated that there was an impending announcement of a 25% tariff on US imports of Chinese goods.
This left investors more anxious about trade war concerns for the first time in over a week, after surprisingly amicable trade talks between the US and EU cooled jitters.
The New Zealand Dollar failed to benefit from today’s mixed NZ job market report either.
New Zealand’s latest job stats were published during Wednesday’s Asian session and most prints beat forecasts. New Zealand’s rising unemployment rate in Q2 concerned some traders, but it was largely due to an unexpected rise in the participation rate from 70.8% to 70.9%.
The employment change figure avoided a fall from 0.6% to the forecast 0.4%, but still slipped to 0.5%.
Pound to New Zealand Dollar (GBP/NZD) Forecast: Bank of England (BoE) in Focus
While some key UK ecostats will be published in the coming days, the biggest upcoming event on the UK and NZ economic calendars will be the Bank of England’s (BoE) August policy decision on Thursday.
The BoE is expected to hike UK interest rates from 0.5% to 0.75% in its first and potentially only rate hike of 2018.
However, unless the bank also takes a surprising shift in tone regarding Britain’s economic outlook the Pound to New Zealand Dollar (GBP/NZD) exchange rate is unlikely to be heavily influenced by the decision.
Investors are generally too cautious about Brexit uncertainties to buy the Pound much, and if the bank indicates that Brexit uncertainties are limiting its policy outlook this will leave Sterling limp.
On the other hand, any signs that the bank could hike again in the coming months could send the Pound soaring, while the bank leaving UK interest rates frozen unexpectedly would cause the Pound to plunge.
Other news that could influence the Pound to New Zealand Dollar (GBP/NZD) exchange rate over the coming days includes UK PMI data from Markit, and of course any major developments regarding US-China trade tensions.