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2016

New Zealand Dollar Research Report

Published: Wednesday 07 December 2016

  • New Zealand PM resignation fails to topple NZD
  • Strengthening Pound as NZ economy fails to live up to 2015 levels
  • Brexit soundbites bring UK-EU relationship back to the fore


NZD wobbles but no dramatic fall

 
The major news from New Zealand has been the resignation of Prime Minister Key. Ordinarily, a move of this nature would cause New Zealand Dollar weakness, however the markets regained their composure extremely quickly. The feeling is that it’s likely that the New Zealand Finance Minister, Bill English, will step in to the role – bringing with him familiarity and solidarity – and that is the reason the NZD has not wobbled further.
 
In contrast, the Pound is strengthening a touch as the macro economic outlook for the New Zealand economy is not as positive as it has been throughout 2016. Trade prices and the Kiwi housing market have both deteriorated recently.
 

News from the UK

 
November has been the most positive month for the Pound since the UKEU Referendum by a distance. Fading chances of the Bank of England easing monetary policy have seen the Pound bounce. As has been the case over the past six months, Brexit news still dominates. There has been a fair amount of discussion regarding a so called ‘soft-Brexit’ this month.
 
The Secretary of State for Exiting the European Union, David Davis, has offered positive ‘soundbites’ regarding a more inclusive Brexit. He said that the UK would consider making payments to the EU post-Brexit to secure the best possible access to the EU single market. Mr Davis told MPs that the "major criterion" was to get the best access to the European market for goods and services. "And if that is included...then of course we would consider it." The Pound took this news positively and responded accordingly.
 

A warning to Sterling sellers

 
Looking ahead, there is still important news from the Supreme Court, regarding whether Parliament will be able to vote on triggering Article 50. This will have significant implications as to the nature of how we leave the European Union. Sterling sellers should be wary of the risks of waiting until this is announced in January, as it could cause the Pound to tumble significantly.
 
Those with short to medium term exposure should certainly approach the New Year with caution – there is still a tremendous amount of Brexit related risk for the Pound and anyone looking at trading in the first half of 2017 would be wise to look at getting at least a portion of their risk off the table at these slightly higher levels.
 



New Zealand Dollar Research Report compiled by Charlie Horsley

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