The Pound New Zealand Dollar exchange rate has been unable to hold its best gains this week, but still remains above the week’s opening levels due to New Zealand Dollar weakness and slightly better-than-expected UK wage growth stats. GBP NZD surged from 1.7703 to 1.7895 on Tuesday, but has since dropped to around 1.7785.
Pound (GBP) Fluctuates on BoE Disappointment and Decent Wage Data
This week has seen high volatility in the Pound as investors shift their outlooks for the British currency on UK data and the stances of Bank of England (BoE) policymakers.
BoE Deputy Governor of Monetary Policy, Ben Broadbent, spoke on Tuesday afternoon and Wednesday morning. As he had yet to give his recent thoughts on Britain’s monetary policy outlook, some investors hoped he would take a more hawkish tone due to surging UK inflation.
However, Broadbent indicated he was not ready to support a rate hike. His stance reflected his warnings about how the Brexit process could negatively affect British trade. He stated on Wednesday morning;
‘There is reason to see the committee moving in that direction (higher interest rates) – but there are still a lot of imponderables.
In my opinion, it is a bit tricky at the moment to make a decision (to raise rates). I am not ready to do it yet.’
Following Broadbent’s comments Sterling was far weaker, but it picked up again slightly after Britain’s May employment report was published.
Notably, British wage growth excluding bonuses improved from 1.8% to 2%, despite being projected to only rise to 1.9%.
While the report still confirmed that real wages were falling as the difference between inflation and wages widened, the better-than-expected wage growth was more resilient than markets expected.
The May unemployment rate also improved unexpectedly, from 4.6% to 4.5%.
Sterling is unlikely to see any more big shifts in movement for the rest of the week and investors will be looking ahead to next week’s June UK inflation stats as the next big focus.
Bets that the Bank of England could take action as soon as August have all but vanished this week, but for now the better-than-expected wage growth data has boosted the Pound outlook slightly and could see the British currency recovering slightly before the end of the week.
New Zealand Dollar (NZD) Weak as Investors Expect Poor Retail Data
This week’s report for New Zealand card spending at retail came in well below expectations, weakening the New Zealand Dollar and making investors anxious about New Zealand’s latest retail stats.
June card spending was expected to improve to around 0.8%, but only lightened from -0.4% to a disappointing and stagnant 0%.
As card spending makes up around two thirds of all retail activity in New Zealand, this has been a concerning indication of NZ retail activity in June.
The ‘Kiwi’ has also been sold this week due to news that New Zealand Prime Minister Bill English had approved a NZ$1b housing infrastructure fund.
This caused 2-year government bond yields to drop, which indicates that market hawkishness on the Reserve Bank of New Zealand (RBNZ) has slumped. Bets of a March 2018 rate hike are now just around 50%.
Over the coming days, the New Zealand Dollar outlook could be influenced by ANZ’s Roy Morgan consumer confidence survey from July, or the NZ business PMI for June.
However, the biggest upcoming NZD influence will be the Q2 Consumer Price Index (CPI) report, which will be published next Tuesday.
GBP NZD Interbank Rate
At the time of writing this article, the Pound New Zealand Dollar exchange rate trended in the region of 1.7790. The New Zealand Dollar to Pound exchange rate traded at around 0.5620.
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