Widened NZ Trade Deficit Boosts Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate
A wider-than-expected New Zealand trade deficit helped to extend the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate’s bullish run.
While forecasts had pointed towards the trade balance falling back into a state of deficit investors were disappointed by the scale of the decline.
Particularly concerning was the sharp slowdown in export volumes on the month, suggesting that the New Zealand economy started 2019 on a weaker footing.
Coupled with the general decline in market risk appetite, driven by increasing geopolitical tensions, this left the New Zealand Dollar (NZD) on a weaker footing on Wednesday.
With the global economy looking set to slow further in the months ahead the odds of a significant recovery in trade appear limited, to the detriment of NZD exchange rates.
Falling Odds of No-Deal Brexit Extend GBP/NZD Exchange Rate Gains
As analysts slashed the odds of a no-deal Brexit this gave Pound Sterling (GBP) an additional boost against its rivals.
With markets hopeful that the UK will not crash out of the EU without a deal now that there is a possibility of extending the Brexit deadline the mood towards the Pound remained bullish.
However, it remains to be seen whether MPs will vote in favour of an extension, assuming that Theresa May’s proposed deal fails to find sufficient support.
As a result, a significant degree of uncertainty still hangs over the outcome of the Brexit process, limiting confidence in the outlook of the UK economy.
If the latest GfK consumer confidence index shows a continued decline in sentiment this could dent the GBP/NZD exchange rate.
Friday’s UK manufacturing PMI may also weigh heavily on the Pound, with forecasts pointing towards the sector losing further momentum in February.
Unless there are signs of greater resilience within the UK economy this should leave GBP exchange rates exposed to selling pressure.
New Zealand Dollar (NZD) Looks for Support on ANZ Activity Index
The mood towards the New Zealand Dollar could improve on the back of February’s ANZ activity outlook index, however.
Evidence of a more robust economic outlook would give investors fresh incentive to favour the New Zealand Dollar over its less risk-sensitive rivals.
If the accompanying business confidence index continues to slide, though, this could see NZD exchange rates come under additional pressure.
Deteriorating market risk sentiment could weigh heavily on the New Zealand Dollar, even as the likelihood of further Federal Reserve interest rate hikes declines.
Any fresh loss of momentum in the latest Chinese manufacturing PMI may leave NZD exchange rates on a weaker footing.
As a slowing Chinese economy would drag on commodity prices and the strength of the wider global economy a weaker showing here could prompt an increased sense of risk aversion among investors.
Unless there are tangible signs of progress towards a US-China trade agreement NZD exchange rates may struggle to find support in the near term.