The near-term outlook for the GBP NZD exchange rate has improved today, with markets growing optimistic that the UK and the EU will move forward with Brexit negotiations now that a ball-park ‘divorce sum’ is being seriously considered.
UK Offers Larger Divorce Sum, GBP Exchange Rates Inch Ahead
The Pound soared against the New Zealand Dollar (GBP/NZD) on Wednesday, bolstered by news that the UK has offered a much larger potential divorce sum to the EU and been greeted with ‘broad agreement’ from Brussels.
Historically the lack of a decided divorce figure has prevented talks from progressing, with the EU refusing to discuss things like trade until they are sufficiently pleased with the amount that the UK is willing to pay.
This new figure, however, could finally prove ‘sufficient’, paving the way for trade talks to begin and eliminating the prospect of a ‘cliff-edge’ Brexit.
Both sides are now reportedly attempting to formalise the agreement in the form of a joint paper – perceivably setting things out in black and white.
If no hiccups are encountered in the construction of this document then it could even be published before the week’s end, a prospect that would cause market demand for the Pound to rocket.
NZ Political Fears Dissipate, NZD Exchange Rates Bolstered
Markets had previously been anxious that the new Labour led coalition in New Zealand might result in drastic changes to the nation’s economy, particularly relating to election pledges to reform the Reserve Bank of New Zealand (RBNZ), ban the foreign purchase of residential property and drastically cut migration by a planned 40%.
Despite these worries the reform planned for the RBNZ and its potential to hurt the ‘Kiwi’ Dollar is now looking like something of a damp squib, with the Bank’s Governor Grant Spencer asserting earlier this month that changes to the bank’s mandate would not likely have a major impact on monetary policy.
Beyond this, yesterday’s RBNZ financial stability report for November revealed that New Zealand’s financial system is perceivably sound and that risks have substantially reduced over the last 6-months.
Spencer stated:
‘Momentum in the global economy has continued to build over the past six months, reducing near-term risks to financial stability. However, the New Zealand financial system remains exposed to international risks related to elevated asset prices and high levels of debt in a number of countries’.
Markets are still waiting to see the final form that the migration policy will take, however, with many remaining slightly apprehensive about how cuts will affect the nation’s economy.
Nonetheless, the GBP NZD exchange rate outlook continues to favour the Pound in light of the recent progress made in Brexit negotiations.
Notable Ecostats Ahead for GBP NZD
This evening the New Zealand building permit figures will be released, with a massive climb forecast from -1.0% previously to 1.8%.
Tomorrow will notably feature the ANZ activity outlook reading, the business confidence reading, the QV house prices assessment and the terms of trade index, with the terms of trade print expected to drop from 1.5% to 1.3% in Q3 2017.
For the UK, markets will be watching the GfK’s consumer confidence reading for November, due on Thursday, and Friday’s Markit manufacturing PMI, two readings that may get side-lined however by any news relating to the UK’s Brexit negotiation progress (or a lack thereof).
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