NZD Demand Sends British Pound To New Zealand Dollar Exchange Rate Down To Record Lows

Although the New Zealand Dollar has remained on bullish form the Pound (GBP NZD) has been able to make some modest gains in response to the latest UK data

At the time of writing the British pound to New Zealand dollar exchange rate is seen trading fractionally higher on the day at the 1.70669 level.

GBP/NZD continued to fluctuate near its record lows on Thursday afternoon as Sterling saw volatile movement throughout the afternoon.

Demand for the NZ dollar remained solid, but risk sentiment slipped in the afternoon as American markets opened and more investors piled into the US Dollar. Fed rate hike bets increased due to hawkish statements from policymakers, adding to USD demand.

Although risk appetite was generally weakened by increasing bets of an imminent Federal Reserve interest rate hike the New Zealand Dollar has edged higher against the Pound.

Worries over the outlook of the UK economy maintained pressure on Pound Sterling, meanwhile, as UK retail sales faltered somewhat to dip from 6.6% to 4.1% on the year in September

• The Euro to New Zealand Dollar exchange rate today (20/10/16): +0.21pct at 1.52103.
• The British Pound to New Zealand Dollar exchange rate today (20/10/16): +0.07pct at 1.70155.

Another solid uptick in prices at the GlobalDairyTrade auction offered support to the New Zealand Dollar (NZD) by improving the outlook of the commodity.

However, confidence in the higher-yielding asset was soon limited by the relative strength of the US Dollar (USD), with bullish US inflation data raising the odds of the Federal Reserve returning to its monetary tightening cycle before the end of the year.

This offered the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate an opportunity to recover some ground, despite markets showing a somewhat mixed reaction to the latest raft of UK data.

Latest Pound/New Zealand Dollar Exchange Rates

The GBP NZD exchange rate fluctuates as while domestic unemployment remained steady, with the joint-highest level of people in work since 1971, some of the reassurance of this result was muted by the fact that wage growth had continued to stall.

Given Tuesday’s stronger-than-expected rise in the UK inflation rate investors are concerned that the domestic standard of living is likely to be squeezed over the coming months, something which could negatively impact on the economy.

Although the odds of another Bank of England (BoE) interest rate cut are limited at this juncture the Pound New Zealand Dollar GBP NZD exchange rate remains biased to the downside, as Jason Wong, currency strategist at BNZ, notes:

‘Recent UK economic data have held up better than expected in the Brexit vote aftermath, but we think that it is just a matter of time before signs of weaker activity are forthcoming. A “hard Brexit” has become more likely and the economy faces a prolonged period of economic uncertainty, which should lead to a slump in business investment. In the meantime a large current account deficit needs to be funded. It points to further upside pressure in NZD/GBP over time and a risk of breaking GBP0.60.’

GBP NZD Exchange Rate Under Pressure on UK Deficit Worries

The Pound New Zealand Dollar (GBP NZD) exchange rate could suffer a further decline on Friday, with investors expected to pay close attention to September’s public sector net borrowing data.

Higher levels of government borrowing would indicate that the UK’s deficit remains wide, something of particular concern given the weakness of the Pound and uncertain nature of the country’s future relationship with the EU.

However, given recent trends, even a weaker showing here could be overshadowed by any significant new developments within the Brexit saga, with the Pound remaining primarily tied to sentiment.

NZD Forecast: Risk Aversion Could Limit New Zealand Dollar Strength

Demand for New Zealand Dollar (NZD) exchange rates could pick up, meanwhile, in response to September’s credit card spending figures.

If the New Zealand economy continues to show signs of resilience and consumer spending remains robust then the ‘Kiwi’ is likely to trend higher, despite the high odds of the Reserve Bank of New Zealand (RBNZ) imminently cutting interest rates.

Risk appetite may weaken further, though, if markets continue to bet on the Fed taking action in December and could see the GBP/NZD exchange rate shored up ahead of the weekend.