Pound to New Zealand Dollar Exchange Rate Avoids Losses as US China Trade Concerns Persist
Thanks to firming bets that the Bank of England (BoE) will hike UK interest rates soon, as well as market uncertainty over US trade protectionism, the Pound to New Zealand Dollar (GBP/NZD) exchange rate avoided major losses on Monday.
These factors bolstered GBP/NZD last week and pushed the pair from 1.9319 to 1.9529. The pair was unable to hold its best monthly levels of 1.9637 however, as Reserve Bank of New Zealand (RBNZ) optimism supported the ‘Kiwi’.
Still, Sterling (GBP) remains appealing too so this RBNZ optimism has largely caused GBP/NZD fluctuations rather than losses.
Concerns about the US Presidential administration’s stances on global trade have also limited demand for risky trade-correlated currencies like the New Zealand Dollar (NZD).
The US recently introduced plans to put tariffs on trade with China and China quickly retaliated. This has left markets anxious that unless talks between the nations are successful, a ‘trade war’ could break out.
Pound (GBP) Outlook Higher Following Last Week’s Brexit and BoE News
The Pound is likely to see stronger support following last week’s major Brexit developments and rise in Bank of England (BoE) interest rate hike bets.
As a result, GBP/NZD may more easily trend higher in the coming months regardless of risk-sentiment and New Zealand Dollar strength.
Significantly, negotiators from the UK and EU revealed an agreement over a post-Brexit transition period for Britain. By the end of the week, the deal was largely secured and as a result investors’ fears over a ‘cliff edge’ Brexit scenario have subsided.
Hopes for a more smooth and orderly Brexit bolstered Bank of England (BoE) interest rate hikes too. Bets firmed further amid news of rising UK wage growth and retail sales, as well as the bank’s own hawkish tone in March’s policy decision
With Pound investors now confident that the BoE will hike UK interest rates at least once, possibly even twice in 2018, as well as ‘hard Brexit’ fears lightening, the Pound outlook is stronger too.
New Zealand Dollar (NZD) Avoids Losses on RBNZ Optimism and Solid Data
While last week’s Reserve Bank of New Zealand (RBNZ) policy decision was largely uneventful, New Zealand Dollar investors have become optimistic about the tone of incoming RBNZ Governor Adrian Orr.
Adrian Orr is set to become the RBNZ’s new Governor this week, and will oversee the bank’s mandate review. Investors became more excited about Orr’s term over the weekend as Orr stated that he was ‘very pleased’ with New Zealand’s economy in recent years.
This doused concerns that the RBNZ could take a more dovish tone under Orr, as well as lightened any bets that the bank would cut NZ interest rates again any time soon.
The New Zealand Dollar saw further support on Monday thanks to New Zealand’s February trade balance results.
New Zealand’s trade balance was forecast to come in with a deficit of N$-100m, but instead printed a surprising surplus of N$217m.
Pound to New Zealand Dollar (GBP/NZD) Forecast to be influenced by Trade Developments
Unless Britain’s final Q4 2017 Gross Domestic Product (GDP) results fall well short of projections on Thursday, the Pound to New Zealand Dollar (GBP/NZD) exchange rate outlook is unlikely to significantly change in reaction to data this week.
New Zealand business confidence data will be published on Wednesday, followed by building permits on Thursday. UK business investment data will be published on Thursday too.
Instead, developments with US trade tariffs and negotiations are most likely to influence the Pound to New Zealand Dollar exchange rate in both the short and the longer term.
For example, if the US and China appear to be more focused on trade talks than trade threats, ‘trade war’ fears will lighten and investors will be more willing to buy risky trade-correlated currencies like the New Zealand Dollar.
On the other hand, if the nations ramp up threats over trade or reported talks appear to fall through, GBP/NZD may see further gains as markets would remain risk-averse.
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