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EncoreFX’s daily market updates are written by our experienced and professional dealing team.

Kiwi grinds out modest gains; What to expect for the NZDGBP and Brexit

Published July 19, 2018

By Phil Lynch

The kiwi is largely unchanged overnight, scoring only modest gains against our major trading partners. It felt a bit like markets were taking a breather after a hectic few days.

The largest 24-hour move was against Sterling, with NZDGBP up another 0.5%. This means gains of 1.5% since Tuesday’s CPI announcement. The overnight gains were on the back of British inflation numbers, which came in at 2.4% vs expectations of 2.6%. This has, in turn, dented chances of a rate hike from the Bank of England at their August meeting.

Data Ahead

Focus now shifts to this afternoon’s Australian jobs report. Expectations are for 17.0k new jobs were added in June, and for the Unemployment Rate to hold steady at 5.4%.

Tonight, there is more risk for Sterling with British Retail Sales numbers released. Markets are expecting a reasonably strong 3.7%.

Brexit Wrap Up

Somewhat surprisingly, the NZDGBP has also stuck within a reasonably tight trading range in recent months. Below we look at Brexit risk, and what this might mean for the NZDGBP.

It’s coming up to crunch time for Brexit, with policymakers looking to finalise the exit deal in the back half of this year. This would allow time for authorities to ratify a deal before Brexit Day in March 2019. Below we look at the potential course for the NZDGBP. This largely depends on a ‘soft’ or ‘hard’ Brexit – and we should find this out well before Brexit Day.

Soft Brexit

This is what we should get if Theresa May can hold together her government and negotiate trade deals with the EU prior to Brexit Day. It would be seen as something of a shallow victory for anti-Brexit campaigners and should allow Britain to carry on trading with the EU in a more seamless fashion. In this scenario, the NZDGBP would be set for a fall.

Hard Brexit

This is what we should get if Theresa May fails to keep her party together, or fails to put together a reasonably solid exit deal. This would be a victory for the hard-line Brexit campaigners but poses serious risks for trade. Sterling would struggle in this scenario and this would open the door for the NZDGBP to return to post-Brexit vote highs.