The NZD has continued to perform solidly against the USD and GBP this week on the back of softer than expected manufacturing data and Brexit concerns in the UK, and growing Trade War uncertainties in the US. The outlook for the domestic economy also received a boost this week with stronger than expected construction data, pointing to the likelihood that the NZ economy is growing faster than expected. Today, 1 NZD will buy you:
Domestic outlook boosted by stronger than expected building activity
Domestic analysts have been buoyed by results released this morning that show New Zealand's building activity hit a three-year high in the March quarter, coming in at 6.2% growth vs last year. Non-residential building activity was the main driver of the boost, rising by 9 percent in the March quarter, while residential construction volumes rose 4.3 percent compared to a 1.9 percent rise in the December quarter. Building activity is seen by many to be a good marker for how the economy is performing, and this result will be welcomed after a downward revision of the NZ budget surplus last week.
These building results were well above predictions of around 1% growth, being described by some economists as ‘remarkable’. Due to the strong results, some are predicting that New Zealand’s GDP may have grown by up to 0.6% for the March quarter, an upward revision from an expected 0.4% rise. We’ll find out for sure in nearly two weeks’ time, so watch this space as we may see a slight rise in the NZD as domestic confidence increases.
No-deal Brexit still weighing heavily on the Pound
With Conservative Party heavyweights duking it out for a chance to lead the country to Brexit by October 31st, nothing much has really changed this week. For GBP markets, the uncertainty of having a number of MP’s seemingly willing to take the UK into a potentially disastrous no-deal Brexit has kept investors on the sidelines and ensured the NZD continues to perform solidly.
Following last month’s decision from the RBNZ to lower the cash rate, the Pound had a slight upward move against the NZD but it appears to have been short lived. Since then, the NZD has risen slowly but steadily against the GBP, bolstered by news this week that UK Construction contracted during the month of May. Even President Donald Trump’s presence in the UK and a promise of a ‘phenomenal’ trade deal with the US post Brexit wasn’t enough to boost the GBP’s performance against the NZD.
With an abundance of uncertainty surrounding Brexit and the possible economic ramifications of a no-deal solution, it looks like the Kiwi dollar is poised to hold around this level or even rise against the Pound until further data is released in the coming months, or a new Conservative Party leader is chosen.
US stocks rebound as Federal Reserve contemplates rate cut of their own
May wasn’t a great month for the US stock market, so it wasted no time in moving positively on news this week from Federal Reserve Chairman, Jerome Powell that the central bank will act to continue economic expansion if the Trump Administration’s trade tariffs weaken the economy. In this case, ‘acting’ is Federal Reserve speak for dropping interest rates if the labour market and inflation figures don’t shape up. “We do not know how or when these issues will be resolved,” Chairman Powell said of the China and now Mexico Trade Wars, and it is obvious that this uncertainty is being closely monitored by the Federal Reserve moving forward.
The good news for Kiwi travellers is that on this news, the NZD ticked up slightly higher against the USD, in a sign the market is beginning to price in at least 1 interest rate cut this year and possibly up to 3. If that happens, or if US economic data continues to come in under expectations, expect the value of the NZD to continue on its recent slight upward trajectory.
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