Friday saw the publication of many key UK ecostats, which fell short of expectations in all notable prints and caused the Pound to drop across the board. The New Zealand Dollar was able to benefit. GBP NZD has been volatile this week but climbed to a high of 1.7861 on Thursday before plunging back towards the week’s opening levels of 1.7770 on Friday morning.
Pound (GBP) Sold on Economic Concerns
The past week’s Pound strength has relied on comments from Bank of England (BoE) officials, suggesting that if Britain’s economy remains resilient it may be necessary to withdraw some of the bank’s stimulus measures.
However, this week’s batch of disappointing UK data has worsened concerns that Britain’s economy may not be as resilient in the second half of 2017 as previously hoped.
Markit’s June PMIs for Britain all fell short of expectations, including the key services PMI. Services slipped from 53.8 to 53.4.
Friday’s session followed with a slew of UK ecostats from May, including the month’s trade deficit update, as well as manufacturing and industrial production results.
The trade deficit worsened from –£2.12b to -£3.07b as imports soared, which was worse than most analysts expected.
Manufacturing production came in at 0.4% year-on-year, missing the forecast 1%. The monthly figure showed a contraction of -0.2%.
May’s industrial production report was even worse, contracting at -0.1% month-on-month and -0.2% year-on-year despite analysts predicting growth in these prints.
These figures rounded off a week of poor data from Britain. Investors don’t expect the Bank of England (BoE) will respond hawkishly to the latest datasets. As a result, the Pound dropped and its mid to long-term outlook worsened.
Next week’s UK job market report may influence the Pound, but investors are more likely to look for potential shifts in tone from any Bank of England (BoE) officials holding speeches.
GBP traders will also be looking ahead to the middle of July, when Britain’s June inflation report will be published.
New Zealand Dollar (NZD) Weaker on Central Bank Speculation
The New Zealand has benefitted from the Pound’s late-week drops, but has been unable to capitalise due to its own weakness.
The high-yielding New Zealand Dollar is often appealing due to the Reserve Bank of New Zealand’s (RBNZ) relatively high NZ interest rates. However, recent weeks have seen increased speculation of other advanced economies returning to normalised monetary policy.
In particular; Canada, the Eurozone and of course the US’ central banks seem to be looking to tighten monetary policy in the coming year or so. This has weighed on demand for higher yielding currencies.
The New Zealand Dollar has also been weakened by underwhelming commodity news. This week saw prices of dairy, New Zealand’s biggest export, slipping -0.4%. Other key commodities like iron ore and oil have seen poor performance too.
However, the New Zealand Dollar has been supported by market expectations that New Zealand’s economy is solid.
The ‘Kiwi’ could be influenced by domestic data next week, including June’s food inflation and business PMI results.
As for the long-term NZD outlook, traders will be focused on the strength of domestic inflation and the interest rate outlooks of other advanced economies.
GBP NZD Interbank Rate
At the time of writing this article, the Pound New Zealand Dollar exchange rate trended in the region of 1.7750. The New Zealand Dollar to Pound exchange rate traded at around 0.5630.
Comments are closed.