- Fed dovishness boosted risk appetite – ‘Kiwi’ benefitted from reduced likelihood of 2016 Fed rate hike
- Confidence in the Pound remained tied to shifting referendum odds – Persistent worries over result increasingly weighed on GBP exchange rate
- New Zealand Dollar bullish despite poor credit card spending data – Dip in net migration shored up ‘Kiwi’ demand
- GBP/NZD exchange rate volatility forecast as results of referendum come in – Vote to leave could prompt sharp slump for the currency pair
New Zealand Dollar (NZD) Extends Gains against Pound (GBP) on Brexit Fears
With the first votes in the EU referendum having now been cast the Pound (GBP) has returned to a weaker footing against rivals, with markets still concerned by the potential closeness of the result. Even so, weakness in the US Dollar (USD) continued to shore up the New Zealand Dollar (NZD) on Thursday. As a result the Pound to New Zealand Dollar (GBP/NZD) exchange rate trended sharply lower in the region of 2.0495.
(Previously updated at 10:09 on 22/06/2016)
Referendum speculation has dominated the mood of markets this week, with the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate buffeted by persistent Brexit-based uncertainty.
Swing towards ‘Remain’ in Opinion Polls Prompted Sharp Pound (GBP) Rally
Despite the proximity of the UK’s EU membership referendum the Pound (GBP) started the week on a stronger footing, buoyed by an apparent swing towards the ‘Remain’ campaign in a number of opinion polls. This optimism was largely a reversal of caution seen in previous weeks, with Sterling tracking the varying market odds that the UK public will vote in favour of a Brexit. As a result the impact of the latest UK public finance data was limited, despite the fact that new government debt was found to have risen by 9.1 billion Pounds in May. With the focus sharply on the outcome of the referendum, this sign of weakness in the domestic economy went largely overlooked.
Risk appetite was generally improved by the increasing market confidence in the chances of a ‘Remain’ camp victory, benefitting the New Zealand Dollar (NZD). The appeal of the ‘Kiwi’ was enhanced further on Tuesday by the relatively dovish tone of Fed Chair Janet Yellen, who indicated that the central bank’s monetary tightening will be a gradual process. With the prospect of a summer, or even 2016, interest rate hike seeming to diminish as a result the antipodean currency strengthened. Subsequently, with some of the wind coming out of the Pound’s sails, this saw the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate struggling to maintain an uptrend.
New Zealand Dollar (NZD) Made Gains on Brexit Uncertainty despite Weak Data
Uncertainty over the outcome of Thursday’s vote soon began to gain steam again, however, with some of the week’s earlier confidence beginning to falter. Opinion polls have not pointed towards a conclusive lead for either camp, with investors still remembering the pollsters’ failure to predict the result of the last general election. As Derek Halpenny of MUFG noted:
‘There will be a number of final opinion polls released today but we doubt there will be major moves for the Pound at this late stage. The recent appreciation of the Pound was probably in large part the final liquidation of Pound short positions as market participants remove risk prior to the actual event. If that’s the case we doubt there will be much appetite for establishing positions at this point just ahead of the event.’
Demand for the ‘Kiwi’ remained stronger on Wednesday, meanwhile, in spite of a disappointing credit card spending report. Consumer confidence in the New Zealand economy appeared to weaken in May, with growth in card spending slowing from 9.1% to 5.9%. Nevertheless, markets were inclined to take a more positive view of the higher-yielding currency in the wake of a modest drop in the Net Migration figure. Even so, as Philip Borkin, Senior Economist at ANZ, commented:
‘While there are tentative signs net immigration has peaked, we are not ready to call time on the migration cycle yet. With the New Zealand economy continuing to outperform many international peers and it not grappling with the same polarising political issues as many other countries/regions, it should remain an attractive place for migrants.’
GBP/NZD Exchange Rate Forecast: Brexit Result to Dominate Pound Outlook
With no further ecostats due from New Zealand this week the outlook of the ‘Kiwi’ will remain tied to wider market sentiment. Should risk appetite continue to weaken then the New Zealand Dollar is likely to return to a more bearish trend against many of its rivals, although Brexit risk will impact the Pound more severely.
Pronounced volatility is expected for the Pound as the results of the EU referendum begin to come in around midnight on Friday. If momentum is indicated to have returned to the ‘Leave’ campaign then the appeal of Sterling is likely to diminish markedly, particularly if the ultimate result turns out to be a vote for a Brexit after all. Should the ‘Remain’ camp prove victorious on Friday, though, the GBP/NZD exchange rate is predicted to see another relief rally going into the weekend.
Current GBP, NZD Exchange Rates
At the time of writing, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was slumped in the region of 2.0490, while the New Zealand Dollar to Pound Sterling (NZD/GBP) pairing was making gains around 0.4879.
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