New Zealand Dollar Struggles to Hold Ground Despite Sharp Improvement in Building Permits
Overnight the Pound to New Zealand Dollar (GBP/NZD) exchange rate saw a sharp decline in response to a surprisingly strong uptick in February’s New Zealand building permits figure.
As the number of new authorised building permits jumped 5.7% on the month this suggests that the outlook for the housing market, and the wider economy, is improving.
With domestic confidence showing signs of strengthening this naturally boosted the appeal of the New Zealand Dollar (NZD).
However, the antipodean currency struggled to hold onto this boost for long thanks to lingering market jitters and a stronger US Dollar (USD).
This offered the GBP/NZD exchange rate some degree of support, even as the latest raft of UK data proved generally less encouraging.
GBP/NZD Exchange Rate Gains Forecast on Solid UK PMIs
After the fourth quarter UK gross domestic product was confirmed to have dipped to 0.4% the mood towards the GBP/NZD exchange rate remained rather muted.
Confidence in the outlook of the UK economy could still pick up in the coming days, however, if March’s PMIs prove encouraging in nature.
While forecasts point towards a loss of momentum in all three sectors the PMIs are expected to remain comfortably above the neutral baseline of 50, which divides expansion from contraction.
As long as the economy continues to demonstrate signs of robust growth the downside potential of the Pound is likely to be somewhat limited.
However, if the services PMI proves weaker than forecast this could put fresh pressure on the GBP/NZD exchange rate, given the fact that the sector accounts for more than three quarters of UK economic activity.
Speculation over Brexit may also provoke some Pound jitters in the near term, with less than a year now left until the March 2019 exit deadline.
Dairy Price Boost Could Support New Zealand Dollar Exchange Rates
An uptick in prices at the latest Global Dairy Trade auction could provoke further losses for the GBP/NZD exchange rate, at least in the short term.
Concerns over the health of the dairy industry are likely to remain a drag on the New Zealand Dollar, however, if the general sense of market risk appetite remains limited.
Even so, analysts at ANZ maintain an optimistic view of domestic outlook, noting:
‘It is hardly a negative story. We see wage growth gradually lifting off lows, corresponding with a modest broadening in domestic inflation pressures in time. That lift should eventually see the RBNZ join other central banks in removing monetary policy stimulus. However, we feel strongly that it will be late to that party, with the first hike not until the second half of 2019.’
Any improvement in the ANZ commodity price index or consumer confidence index may give the Reserve Bank of New Zealand (RBNZ) greater cause for optimism.
However, speculation over the changing shape of the RBNZ and its policy outlook could still limit the impact of any positive domestic data, to the benefit of the GBP/NZD exchange rate.