The New Zealand Dollar has seen its first bullish movement since the new Labour-led coalition came into power, pushing the Pound New Zealand Dollar exchange rate down from its 2017 highs.
While GBP NZD is still well above this week’s opening level of 1.9087, it has dropped over a cent from Tuesday’s one-year-high of 1.9420.
Pound (GBP) Outlook to be Inspired by Bank of England (BoE) Decision
Despite the New Zealand Dollar’s surge on Wednesday, the Pound has still seen strong performance in recent sessions overall.
Rising hopes that the Brexit process will see significant developments at a faster pace now, as well as hot speculation that the Bank of England (BoE) could hike UK interest rates as soon as tomorrow, have left the Pound appealing to investors.
On Tuesday, EU chief negotiator Michel Barnier indicated that the EU side was ready for negotiations to speed up. If the first phase of negotiations finish, UK-EU trade talks are likely to begin, meaning Barnier’s comments were definitely positive for the Pound.
While markets are still split on whether or not to expect a UK interest rate hike from the Bank of England (BoE) as soon as this week, strong UK data has made investors more hawkish on the possibility.
On Wednesday, Markit published its October manufacturing PMI. The PMI was forecast to slip slightly, from 55.9 to 55.8. However, the previous figure was revised higher to 56 and the October figure came in at a strong 56.3.
Still, is this enough to make a UK interest rate hike a certainty?
More and more analysts now expect the bank to hike rates this week, despite the uncertainty shown by some Bank of England officials, as well as the ongoing concerns about Britain’s pay squeeze.
Due to the recent signals that rates will rise within the coming months, a policy freeze would also ramp up criticism towards BoE Governor Mark Carney, who has been called ‘unreliable’ in the past.
So the Bank of England’s (BoE) decision on Thursday is likely to have a major impact on the Pound outlook, both in the short term and the long term.
If the bank opts to leave monetary policy frozen, the Pound will plummet across the board and investors will look for signals of a rate rise in December or early 2018.
On the other hand, if the bank does hike UK rates, the Pound will advance and firm higher, perhaps helping it to hold its ground near its best levels in months.
Also due in the coming days are Markit’s other October PMIs. The services print on Friday could be influential due to Britain’s reliance on the services sector, but the BoE decision is much more likely to dictate the Pound New Zealand Dollar outlook.
New Zealand Dollar (NZD) Strengthens on Job Market Report
New Zealand’s Q3 job market report was published during Wednesday’s Asian session and came in well above expectations in most prints.
The participation rate was forecast to rise just slightly, from 70% to 70.2%, but instead jumped up to 71.1%.
Despite this, the key unemployment rate beat expectations of 4.7%, improving from 4.8% to 4.6%. This was New Zealand’s lowest unemployment rate since the financial crisis in 2008.
Investors were also impressed by New Zealand’s latest wage growth data, with the wage rate coming in at 1.9% year-on-year, making it the highest annual increase since 2012.
The strong employment report helped the New Zealand Dollar to put in a solid recovery, following weeks of being dragged down by political news.
‘Kiwi’ trade had been bearish since the new Labour-NZ First coalition came into power in October, but some analysts believe the currency had been over-sold.
The strong job data indicated that New Zealand’s job market was much healthier than expected, but could also be helping New Zealand Dollar trade to normalise somewhat.
New Zealand Dollar trade could continue to steady in the coming days as investors digest the job data and political jitters ease.
Next week could be highly influential for the ‘Kiwi’ though, as the Reserve Bank of New Zealand (RBNZ) will hold its November policy decision.
If the bank takes an optimistic stance despite the recent political uncertainty, this could help support the New Zealand Dollar outlook too.
GBP NZD Interbank Rate
At the time of writing this article, the Pound New Zealand Dollar exchange rate trended in the region of 1.9240. The New Zealand Dollar to Pound exchange rate traded at around 0.5195.
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