Pound to New Zealand Dollar Exchange Rate Slips despite Stronger UK Services PMI
A hat trick of stronger than expected UK PMI reports this week has not been enough to keep the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate trending at its best levels, as investors have been unwinding bets against the New Zealand Dollar (NZD).
Broad trade jitters made it easier for GBP/NZD to climb from 1.9200 to 1.9516 last week, and this week the pair touched on a monthly high of 1.9616 before slipping back towards the week’s opening levels.
Sterling (GBP) showed no signs of advancing on Wednesday morning, despite Markit’s UK services PMI beating forecasts. As a result, GBP/NZD continued to trend closely to the week’s opening levels at the time of writing.
This was due to investors unwinding bets that the New Zealand Dollar would continue to fall, essentially helping the currency to see a sustained and supported rebound from its recent lows.
Pound (GBP) Exchange Rate Losses Limited as UK Services PMI Beats Forecasts
The Pound may have seen further losses against a recovering New Zealand Dollar on Wednesday, if Markit’s latest UK services PMI hadn’t beaten expectations.
Britain’s services PMI was forecast to remain at 54.0, but instead it climbed to 55.1.
As services make up a notable chunk of Britain’s economic activity, the data indicated to investors that Britain’s economic activity had seen a stronger than expected rebound towards the end of Q2 2018.
The data kept investors more optimistic about the possibility of an interest rate hike from the Bank of England (BoE) as soon as August and supported Pound trade.
However, there were downsides to the report too. According to Duncan Brock, Group Director from the Chartered Institute of Procurement & Supply:
‘However the downside of this achievement came in the form of relentless capacity difficulties as business backlogs rose to an acute degree, not seen for around three years. Not even the minor uplift in hiring could alleviate the problem as salary pressures and the struggle to find skilled hires caused firms to hesitate to increase staff numbers further.’
New Zealand Dollar (NZD) Exchange Rates Advance as Short Positions Lighten
Analysts have recently noted that the number of investors betting the New Zealand Dollar will fall may have been overdone – and that is among the main reasons for the currency’s Wednesday recovery.
As some investors pulled back on short positions against the New Zealand Dollar, the currency found support and recovered slightly from the lows it had seen over the past week.
A short position is essentially a bet that a currency will decline, and NZD trade had seen a significant number of short positions in recent weeks.
According to Imre Speizer from Westpac Banking Corp in Auckland:
‘There is very imbalanced positioning with most of the speculative market very short the kiwi’
Speizer also noted that the New Zealand Dollar should have fallen on the latest disappointing dairy commodity data, but it didn’t – another sign that some short positions were being undone.
Pound to New Zealand (GBP/NZD) Forecast: Bank of England’s Carney to Speak on Thursday
Unless there are surprising comments on the UK monetary policy outlook from Bank of England (BoE) Governor Mark Carney on Thursday, or notable Brexit developments, the Pound to New Zealand Dollar (GBP/NZD) exchange rate outlook is unlikely to change further this week.
Sterling will likely remain supported by the latest solid PMI results, as well as bets that the Bank of England will hike UK interest rates in August.
However, if BoE Governor Carney discusses monetary policy at all in his Thursday speech, it could influence BoE bets and the Pound’s strength.
For example, if Carney ramps up cautious rhetoric despite the PMI data, interest rate hike bets may fall and the Pound would weaken.
UK labour productivity data will be published on Friday which may influence Sterling slightly too, but the New Zealand Dollar is likely to remain resilient.
Amid a lack of New Zealand data until next week’s NZ business PMI report, the New Zealand Dollar is more likely to respond to developments in US trade protectionism – though investors may be hesitant to let it fall much further.
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