Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Muted as ‘Phase One’ Signing May be Delayed
UPDATE: The Pound Sterling New Zealand Dollar (GBP/NZD) exchange rate remained flat on Thursday morning ahead of the Bank of England’s (BoE) monetary policy meeting, leaving the pairing trading at around NZ$2.0160.
The risk-sensitive ‘Kiwi’ was left under pressure as reports revealed an anonymous member of the Trump administration said the signing of the ‘Phase One’ US-China trade deal is likely to be delayed.
The official mentioned that London is being considered as a possible location for China’s Xi Jinping and US President Donald Trump to meet.
While the location is being considered for the 3rd and 4th December during the NATO summit, the sourced said it was ‘under consideration but nothing decided’.
Meanwhile, investors are focused on how the BoE is going to respond to the latest Brexit developments.
However, with the snap general election and a new Brexit deadline, it is unlikely the bank will give an explicit sign about the direction interest rates are headed.
Pound New Zealand Dollar (GBP/NZD) Exchange Rate Muted Ahead of BoE Meeting
The Pound New Zealand Dollar (GBP/NZD) exchange rate remained flat on Wednesday morning, with the pairing trading at around NZ$2.0187 as Brexit uncertainty continued to weigh on Sterling.
European Union Brexit negotiator, Michel Barnier triggered a fresh bout of Brexit jitters when he suggested a future trade relationship between the UK and Europe would be ‘difficult and demanding’.
Commenting on this, Jane Foley, senior currency strategist at Rabobank stated:
‘There is a lot of pressure to get a trade deal done in a very short period of time and Barnier is indicating that could be tough.
‘So for Sterling there is the possibility that a lot of good news that was built into the price in October could start to seep out.’
Added to this, British politics weighed on Sterling as politicians officially begin campaigning ahead of the December UK election.
Investors favour a Tory win as this is perceived as the best way to break the Brexit deadlock in parliament, so traders welcomed news that the Tories are leading in polls by 15 points.
But with the 2019 UK election predicted to be a hard result to call, a lack of clarity still clouds markets to the detriment of GBP exchange rates.
Meanwhile, traders were cautious ahead of Thursday’s Bank of England (BoE) monetary policy meeting and interest rate decision.
The bank has previously warned against further Brexit delays, and political uncertainty has left a strong mark on business confidence. With the recent slew of disappointing UK economic data and pressure from Brexit and the upcoming UK election, forecasts for a near-term rate cut have increased.
New Zealand Dollar (NZD) Under Pressure as Unemployment Rises from 11 Year Low
The New Zealand Dollar edged lower against Sterling as Tuesday’s employment data revealed that the unemployment rate rose to a higher-than-expected 4.2% during the third quarter.
The rise in unemployment followed an 11 year low in the second quarter of 2019, which likely dampened ‘Kiwi’ sentiment on Wednesday.
Domestic focus has now turned to next week’s Reserve Bank of New Zealand (RBNZ) monetary policy meeting, which leaves economists divided on whether the bank will slash rates by a further 25 basis points.
However, Westpac Bank senior economist, Michael Gordon said the employment data ‘suggest a stronger labour market than the Reserve Bank was anticipating’ and added:
‘These results support our view that the RBNZ will leave the OCR unchanged at next Wednesday’s review.’
US-China Optimism Fails to Buoy New Zealand Dollar (NZD)
The risk-sensitive New Zealand Dollar was left under pressure despite an upswing in US-China trade optimism this week
Beijing and Washington appear to be closer to a trade deal, and reports revealed that China have been pushing US President Donald Trump to remove further tariffs.
According to the South China Morning Post, ‘firmer commitments on lifting tariffs’ are required before China visits the United States.
Commenting on the ‘Phase One’ deal, Michael Yoshikami founder and CEO of Destination Wealth Management said:
‘The US-China trade deal, I think, is really off to a reasonable start. I saw the president say it’s 60% of the way there, I’m not sure of that but I do believe there’s going to be continued momentum on the trade front.’
Pound New Zealand Dollar Outlook: Will US-China Trade Optimism Buoy NZD?
Looking ahead to Thursday, it is likely the Pound (GBP) will slide against the New Zealand Dollar (NZD) following the Bank of England’s (BoE) meeting.
If the bank is overly dovish and signals its next move is a rate cut thanks to the increased political uncertainty, Sterling sentiment is likely to slump.
Meanwhile, it is likely the ‘Kiwi’ will react to any developments in US-China trade negotiations. If a location for the ‘Phase One’ trade deal is revealed it is likely risk appetite will rise and cause the Pound New Zealand Dollar (GBP/NZD) exchange rate to fall.