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NZ dollar climbs vs British pound as exit polls point to hung parliament

Friday 9th June 2017

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 The New Zealand dollar rose against the British pound as markets awaited official election results out of the UK after early exit polls pointed to a hung parliament.

The kiwi jumped as high as 56.69 British pence immediately after the polls and was trading at 56.52 pence as at 5pm from 55.55 late yesterday. The New Zealand dollar was trading at 72.07 US cents from 71.96 US cents yesterday.

UK Prime Minister Theresa May had called the snap election to increase her slim majority and strengthen her position ahead of talks to leave the European Union, which begin later this month. Instead, it is looking increasingly likely she may have to scramble to form a coalition government.

Westpac Banking Corp senior strategist Imre Speizer said markets have been largely quiet since the initial reaction that saw the pound tumbled against most currencies. He said the main move came right after the exit polls and even as the results rolled in markets haven't moved much. “It looks like markets priced in a hung parliament in the first minute,” he said.

The biggest problem for the UK is that it weakens their position on the eve of the Brexit talks, Speizer said. “If you have a strong party with a big majority they would have the backing of the people to negotiate hard and demand. With a weak majority or no majority at all the government's not in a great position to be bold about anything,” he said. The end result might be a weaker UK economy.

Looking ahead, Speizer said markets will now shift their focus to next week's Federal Reserve meeting as well as domestic data, including the balance of payments and gross domestic product. A strong GDP reading could give the kiwi a further lift against the Australian dollar given the weak picture across the Tasman. The kiwi was trading at 95.64 Australian cents from 95.36 cents yesterday.

It gained to 4.9004 Chinese yuan from 4.8912 yuan. It increased to 79.41 yen from 78.95 yen yesterday and was at 64.33 euro cents from 63.98 cents late yesterday. The trade-weighted index gained to 77.56 from 77.32 yesterday.

New Zealand's two-year swap rate rose 1 basis point to 2.19 percent while the 10-year swap rate rose 2 basis points to 3.15 percent.

(BusinessDesk)

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