Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Shakes Off Industrial Trends Disappointment
Another negative reading from the CBI industrial trends orders index was not enough to prevent the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate from recovering some ground.
While the index slipped from -5 to -10, reflecting the fact that export orders fell to their lowest level in almost three years, Pound Sterling (GBP) failed to weaken in the wake of the data.
Although market worries over Brexit and the negative impact of prolonged political uncertainty on the UK economy persisted GBP exchange rates still found renewed traction on Tuesday.
Even lingering concerns over the rising odds of a no-deal Brexit were not enough to keep the GBP/NZD exchange rate on a weaker footing.
With market risk appetite taking another blow thanks to the dovish outlook of the Reserve Bank of Australia (RBA) the appeal of the New Zealand Dollar (NZD) widely diminished.
While April’s New Zealand credit card spending data showed solid levels of consumer spending confidence in the outlook of the domestic economy remains limited, to the detriment of NZD exchange rates.
GBP/NZD Exchange Rate Set for Volatility on UK Inflation Data
The mood towards Pound Sterling could sour on Wednesday, however, with the release of April’s UK consumer price index data.
Forecasts point towards the headline annual inflation rate picking up from 1.9% to 2.2%, surpassing the Bank of England’s (BoE) current 2% target once again.
However, even if inflationary pressure picks up sharply this may not be enough to encourage bets that the BoE will tighten monetary policy again in the months ahead.
With Brexit-based uncertainty still tying the hands of policymakers any increase in inflation is only likely to put increased pressure on GBP exchange rates.
As UK wage growth has already shown signs of stalling an increase in price pressures would not bode well for households, potentially dragging on economic growth during the second quarter.
Without signs of a political breakthrough over Brexit the GBP/NZD exchange rate is likely to retain a downside bias.
Narrowed Trade Surplus to Drag New Zealand Dollar (NZD) Lower
Thursday’s New Zealand trade data could see NZD exchange rates extending their downtrend further, however.
As markets expect to see the trade surplus narrow in April confidence in the economic outlook could take a fresh dent.
Fresh signs of domestic weakness are likely to fuel the case for the Reserve Bank of New Zealand (RBNZ) to cut interest rates again, a prospect set to drag on the New Zealand Dollar.
As analysts at ANZ commented:
‘While lower interest rates (and the recent depreciation of the NZD) will support growth, we think a little more stimulus will be required to see inflation lift sustainably to the RBNZ’s target mid-point.
‘We’ve pencilled in another 25bp cut for November with a follow up move in February. However, the global data has turned a bit patchy of late. A materialisation of global risks into tangible consequences (e.g. for commodity prices) would see us bring forward our expectation for the timing of the next OCR cut.’
A sustained period of market risk aversion and elevated global trade tensions may also encourage the GBP/NZD exchange rate to push higher.