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New Zealand Dollars to Pounds Rate Hits Highest in 9 Weeks

Market CommentaryNew Zealand Dollars to Pounds Rate Hits Highest in 9 Weeks
New Zealand Dollars to Pounds Rate Hits Highest in 9 Weeks
New Zealand Dollars to Pounds.

There's potentially helpful news for you today, if you're a British citizen living in New Zealand and thinking of returning to the UK, or a UK business owner making international payments to New Zealand.

The New Zealand dollars to pounds interbank exchange rate has reached its highest in nine weeks, or since April 1st, at 0.5228.

Given this, when you transfer money to the UK from New Zealand, you might now get a higher pound sterling total in your UK bank account. This is compared to if you'd transferred money recently.

This is because, back on May 6th, a month ago, the NZD was as weak as 0.5042 versus the GBP. So it's since strengthened by close to +1.75 cents, or by +3.78%.

Let's contextualise this rise in the value of the New Zealand versus the pound in monetary terms for you.

At today's interbank interbank exchange rate of 0.5228, NZ$250,000 would be worth £130,700. By comparison, at the interbank exchange rate on May 6th of 0.5042, NZ$250,000 would have been worth just £126,050.

So for the same New Zealand dollar amount, that's a rise in the British sterling total of +£4,650.

A first reason why the New Zealand dollars to pounds interbank exchange rate has reached this nine-week high is because financial markets are worried that the UK is heading for a 'No Deal' Brexit.

In addition, a second factor why the NZD has gained versus the GBP is because UK manufacturing fell into contraction in May, while British retail sales fell too.

Let's look more closely at these explanations why New Zealand's currency has reached this nine-week high versus the pound. You might find this useful, to help you decide when to transfer money to the UK in 2019.

NZD to GBP Rate Rises, as Markets Concerned Over 'No Deal' Brexit

A first partial explanation why the New Zealand dollars to pounds interbank exchange rate has risen is because financial markets are worried about the rising odds of a 'No Deal' Brexit.

In particular, global money managers and British investors are concerned by the possibility that the next Prime Minister might favour a 'No Deal' Brexit. This might be as ex-Foreign Secretary Boris Johnson, reports the Financial Times newspaper.

At present, there are 12 candidates to replace Theresa May as leader of the Conservative Party and Prime Minister.

The candidates who currently have the most support are Mr. Johnson and former Brexit Secretary Dominic Raab. They’ve both said that they'd be prepared to take the UK out of the EU without a deal, by the extended deadline of October 31st.

The MPs who want to be the next Prime Minister have until June 10th to declare their candidacy. Then they'll be whittled down in a series of votes, until there are just two candidates remaining.

Whoever wins the final vote will then lead the country, as well as the UK's ongoing negotiations with the European Union.

However, it's also feared that, whoever becomes Prime Minister, they'll have just a short window to talk to the EU. The next Prime Minister is forecast to take office in late July, leaving just three months to finalise Brexit, before the October 31st deadline.

This is weighing on financial markets' confidence in the UK's economic outlook, and the value of the pound sterling.

New Zealand Dollar Gains Versus Pound, as UK Manufacturing Slows

Also, a second factor why the New Zealand dollars to British pounds interbank exchange rate has reached this nine-week high is because the UK economy has showed signs of slowing this week.

In particular, the UK's manufacturing sector contracted in May, while Britain's retail sales decelerated sharply last month too, according to trusted surveys.

UK manufacturing activity eased to 49.4 last month, said economics watchdog IHS Markit yesterday. This is below financial markets' forecasts for 52.0, plus April's figure of 53.1. It’s also the first decline in three years, since July 2016.

In particular, UK factory output shrank in May, as manufacturers wound down production. This follows the stockpiling surge earlier this year.

"High stock levels deterred clients from placing new orders while foreign demand is also under pressure from a weakened global economic environment," said the EY ITEM Club's Howard Archer about this data.

"The UK manufacturing sector was buffeted by ongoing Brexit uncertainty again in May," added Rob Dobson, director at IHS Markit, also.

What's more, UK manufacturing's export sub-index fell to 46.2 in May. This is far below the 50.0 figure that separates growth from contraction, and is the worst result since 2014.

According to IHS Markit, this is first because there's lower demand in Europe. Second, it’s because clients are diverting their supply chains away from the UK, ahead of the possibility of a 'No Deal' Brexit.

The UK's factory sector comprises about 10% of our economy. So when UK manufacturers produce less, this weighs on our GDP (Gross Domestic Product) growth.

In particular, it's forecast that UK GDP will expand by just +0.2% between April and June. This is down from +0.5% in the first three months of this year. So this too has weakened the value of sterling.

Furthermore, UK retail sales fell too in May, according to the British Retail Consortium (BRC) this week. Sales in Britain's shops declined by -3.0%, far below forecasts for a +0.9% rise, as well as April's increase of +3.7%.

This was the sharpest drop in UK retail sales since BRC's records began in 1995. So this points to the continuing uncertainty of Brexit on people's spending.

New Zealand Dollar Rises, as RBNZ Signals No More Interest Rate Cuts

In addition, there’s another reason why the New Zealand dollar exchange rates versus the pound have risen. This is that the Reserve Bank of New Zealand (RBNZ) looks less likely to cut interest rates again.

In turn, when New Zealand's central bank keeps interest rates stable, this encourages global money managers to buy New Zealand assets, in search of higher profits.

Yesterday, RBNZ Assistant Governor Christian Hawkesby's recent speech to the Bank of Japan's Institute for Monetary and Economic Studies was released to the public.

In his speech, Mr. Hawkesby said that the Reserve Bank looked unlikely to cut interest rates again. This follows the RBNZ's decision last month to cut interest rates by -0.25% to an all-time low of 1.5%,

In particular, Mr. Hawkesby signalled that New Zealand's central bank was unlikely to further reduce borrowing costs in the near future, because this would risk lifting inflation above the RBNZ's 2.0% target.

It seems that Mr. Mr. Hawkesby's speech has been released, to ease financial markets' concerns that the RBNZ might further cut interest rates. So this has helped lift the New Zealand dollar.

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email peter.lavelle@purefx.co.uk.

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