The Pound has seen a lot of fluctuation this week against the New Zealand Dollar, the most significant catalyst of which being last week’s UK General Election. This resulted in the loss of a Conservative majority and indeed the loss of a great deal of investor faith in Sterling. This stoop has continued to plague the Pound, with the early week seeing GBP NZD reaching its lowest levels since March as investors sold in reaction to a storm of political uncertainty.
It wasn’t until Wednesday that the Pound managed to present some form of stability thanks to the UK CPI report that revealed that inflation was at a four-year high. Traders took this information optimistically, buying into Sterling on the belief that such high levels of inflation would surely warrant hawkish changes to the Bank of England’s interest rate strategies.
For the ‘Kiwi’, times have been somewhat more relaxed. Coming off of last week’s rather positive Global Dairy Auction, in which dairy prices increased for the sixth consecutive time, the New Zealand Dollar maintained gains against some of its peers and deftly grew against others. As the week progressed, however, some quite significant data releases have knocked the balance; the first being New Zealand’s GDP.
GDP was forecast to remain at 2.7%, consistent with previous levels of growth, but it printed at 2.5%. In addition to this, the ‘Kiwi’ fell with government bond yields, a slump which suggests that traders interpreted this information as being likely to prompt a dovish response from the Reserve Bank of New Zealand and thus, appropriate indication to sell.
Construction also saw some contraction – the first the sector had seen since June 2015, as activity fell some 2.1%.
The fallout from this news also coincided somewhat with the Bank of England’s surprising split in votes on maintaining rate levels. What economists predicted to be an easy 7-1 split, actually ended up as a 5-3 split, a revelation that sent Sterling soaring against the New Zealand Dollar as traders acknowledged the increased hawkish regard and indeed the rising probability of future interest rate hikes.
So where is the pairing at today?
As the week draws to an end the fluctuations continue. NZD is currently seeing some gains on the back of an encouraging Performance of Manufacturing Index, which increased to 58.5 from April’s 56.9 – now a 16 month high.
GBP NZD Forecast
The Conservatives and Northern Ireland’s Democratic Unionist Party are currently in agreement on major principles – that includes Brexit– but all revelations in this regard and indeed a new Government, will have to wait until Wednesday the 21st of June when the Queen’s speech is delivered.
With both parties committed to a consistent cause and Brexit negotiations due to begin next week, investor confidence in Sterling will likely be renewed and with it, some gains against the ‘Kiwi’. The near-term fate of the ‘Kiwi’, however, is largely dependent on next week’s Dairy Auction occurring on Tuesday and the Reserve Bank of New Zealand’s rate decision, on Wednesday. As of now, the forecast is dovish –rates are likely to remain the same, which means the main driving force behind the ‘Kiwi’ will be the Dairy Auction.
With very little data releases due next week for the UK, the majority of fluctuations and near-term fate of the Pound against the New Zealand Dollar will be dependent on the ebb and flow of UK politics.
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