Weaker Pound To NZ Dollar Exchange Rate Pessimistically-Predicted UK Data Looms

While expectations are rising for both the BoE and RBNZ to cut interest rates in August the Pound has been making some strong gains against the New Zealand Dollar today.

The near-term outlook for the pound sterling to New Zealand dollar exchange rate looks dim, on account of the latest economic predictions.

For the UK’s GDP growth rate for the second quarter, the preliminary printing is expected to dip from 2% to 1.9% on the year. In addition, more damage from the Confederation of British Industry (CBI) is expected in the form of a Q3 drop in the business optimism index from -5 to -11.

A larger-than-forecast narrowing of the New Zealand trade surplus failed to put particular downside pressure on the NZ dollar exchange rates today, with risk appetite generally on the rise.

Increasing speculation that the Bank of England will cut interest rates to a fresh record low next week has been weighing heavily on the Pound, meanwhile.

Although little has recently emerged to benefit the Pound, the UK currency has nonetheless managed to advance against the New Zealand dollar.

This is more likely due to a lack of support for the NZD, than any real positive developments for the Pound.

The appeal of the NZD exchange rates has likely been worsened due to the latest US data concerning manufacturing not printing as poorly as had been forecast.

Although the GBP/NZD exchange rate remained on an uptrend on Monday morning some of its earlier gains were erased by unexpectedly poor domestic data.

While investors had anticipated the CBI Business Optimism Index to slide markedly in response to Brexit-based uncertainty the slump from -5 to -47 proved a distinctly discouraging signal.

Foreign currency investors dumped the British Pound (GBP) ahead of the weekend, thanks to a particularly discouraging round of UK economic data.

The flash Manufacturing, Services and Composite PMIs for July all pointed towards a significant slowdown in economic activity, raising fears that the UK could be at risk of falling into a technical recession in the wake of the Brexit vote.

This dovishness of the first post-referendum gauge of the UK economy prompted the Pound to New Zealand Dollar (GBP/NZD) exchange rate to weaken, slumping to fall back from a three-week high.

Latest Pound/New Zealand Dollar Exchange Rates

New Zealand Dollar (NZD) Exchange Rates Stay Weak on Strengthening USD

Confidence in the New Zealand Dollar (NZD), however, has been generally limited in recent days thanks to the strength of the US Dollar (USD) and the growing conviction that more policy easing is imminentReserve Bank of New Zealand’s recent Economic Assessment update.

As Imre Speizer, Research Analyst at Westpac, noted:

‘Consequently, the RBNZ sounded even more dovish about the path for interest rates over the year ahead than they were back in June, commenting that “it seems likely that further policy easing will be required”. The RBNZ didn’t mince its words when it said a “decline in the exchange rate is needed”. With such unequivocal guidance, it’s unsurprising that markets have reacted to the past week’s developments so decisively.’

With markets now pricing in a very high likelihood of a RBNZ rate cut in August there has been little reason to support the softened New Zealand Dollar.

Weaker New Zealand Trade Data Forecast to Benefit GBP/NZD Exchange Rate

Overnight the GBP/NZD exchange rate could receive a further boost from the latest raft of New Zealand trade data, which is not expected to encourage particular confidence.

Exports are forecast to have fallen in June, a development that is likely to have narrowed the trade surplus and hampered domestic economic strength as a result.

Any upside surprise could offer a rallying point to the ‘Kiwi’, although the extremely dovish tone of the RBNZ is likely to keep the appeal of the currency generally muted ahead of the August policy meeting.

UK GDP Data Expected to Drive Further Pound Sterling Volatility

Wednesday’s second quarter UK GDP is likely to provoke volatility for Sterling, despite the fact that the measure is largely outdated thanks to developments in the wake of the EU referendum.

While investors anticipate that growth ticked modestly higher from 2.0% to 2.1% any progress is likely to have been reversed in the turmoil since the Brexit vote, which could limited any resultant Pound strength.

Should GDP fail to show the expected signs of strength, however, the GBP/NZD exchange rate is likely to weaken substantially as the case for the Bank of England (BoE) to ease policy would receive another boost.