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NZ dollar edges up against pound as UK PM May's future weighs on sterling

Monday 13th November 2017

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The New Zealand dollar edged higher against the British pound as media reports questioning the strength of UK Prime Minister Theresa May's hold on her government weighed on the sterling. 

The kiwi increased to 52.72 British pence as at 5pm from 52.51 pence as at 8am and 52.61 pence late Friday in New York. The kiwi was little changed at 69.18 US cents from 69.28 cents last week.

The pound slipped fell 0.5 percent during the Asian trading session after the Sunday Times reported that 40 members of parliament from May’s Conservative Party agreed to sign a letter of no confidence in her. According to Reuters, that is eight short of the number needed to trigger a party leadership contest, the mechanism through which May could be forced from office and replaced by another Conservative, and continues to raise questions over her position since she was narrowly re-elected in June. 

The "issue the UK is grappling with is not just Brexit but also internal politicking within the Conservative party," said ANZ Bank New Zealand senior economist Phil Borkin

Investors are largely focused on the US inflation figures, due Wednesday, with traders pricing in more than an 80 percent chance of a hike by the Federal Reserve at its meeting next month. 

Tthe CPI data "will be 'make or break' ... If it comes out soft, there may be pause for thought," Borkin said. Markets are also watching for any news on US tax reform given the political uncertainty surrounding the proposals.

"It's one of the reasons we are not so optimistic on the USD near term is that perhaps markets have gotten a little bit excited as there are still a lot of things to work through with regard to actually getting a deal registered. Tax cuts are not the cheapest of things," said Borkin. 

Domestically, there will be interest in the upcoming Real Estate Institute housing data this week. In September, the number of property sales across New Zealand dropped 26 percent last month, with all 16 regions recording a decline, weighed down by both political uncertainty and central bank efforts to take the heat out of the market. 

The kiwi fell to 90.27 Australian cents from 90.59 cents on Friday in New York and the trade-weighted index was at 73.44 from 73.51. The local currency declined to 4.5977 yuan from 4.6074 yuan on Friday in the US and traded at 78.61 yen from 78.78 yen.

New Zealand's two-year swap rate fell 1 basis point to 2.19 percent while 10-year swaps rose 2 basis points to 3.22 percent.


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