NZ dollar dives vs Sterling as UK faces snap election

Wednesday 19th April 2017

The New Zealand dollar fell to a seven-and-a-half-month low against the British pound after UK Prime Minister Theresa May called a snap election to seek a stronger mandate to negotiate her country's exit from the European Union.

The kiwi dropped as low as 54.53 pence, the lowest since Sept. 1, and was trading at 54.80 pence at 8am in Wellington from 55.75 pence yesterday. It declined to 65.57 euro cents from 65.82 cents yesterday.

The British pound gained 2.3 percent to US$1.2344 after May called a general election for June 8, accusing opposition parties of threatening her administration's preparations for Brexit. May invoked Article 50 of the Lisbon Treaty to formally set in motion the UK's withdrawal from the regional bloc last month, kicking off a two-year exit process, after last year's referendum in favour of the move. She had previously said she wouldn't go to the polls early but now says political opposition has hindered the exit and that a decisive victory would strengthen the government's negotiating position.

"Commentators see an early election as a positive move that will see May’s government increase its majority, provide more negotiating power in Brexit talks and decrease the probability of an exit with no EU trade deal," Bank of New Zealand currency strategist Jason Wong said in a note. "In a market that has been significantly short GBP for some time, this announcement was a shock and no doubt the move higher reflects some short covering, which could continue in the weeks ahead."

The kiwi rose to 70.41 US cents from 70.06 cents yesterday as the greenback fell against most major currencies in the shadow of the pound's ascendancy. US Treasury Secretary Steven Mnuchin's confirmation that President Donald Trump's tax reform programme will come later than the August target also weighed on the US dollar, along with weaker-than-expected earnings reports on Wall Street.

Dairy prices rose at the latest GlobalDairyTrade auction, with whole milk powder prices, New Zealand's key export product, rising 3.5 percent to US$2,998 a tonne. Hard commodity prices fell, with the Thomson Reuters/CoreCommodity CRB index, a broad measure of prices for raw materials, falling 0.5 percent, weighing on currencies more exposed to the likes of oil and iron ore such as the Australian and Canadian dollars. The kiwi rose to 93.10 Australian cents from 92.70 cents yesterday and gained to 4.8427 Chinese yuan from 4.8261 yuan.

Local data today include the Business New Zealand-BNZ performance of services index and analysts are awaiting first-quarter inflation data tomorrow.

The kiwi traded at 76.34 yen from 76.39 yen yesterday. The trade-weighted index increased to 76.35 from 76.20 yesterday.

(BusinessDesk)

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