The NZD is one of the outperformers in FX markets on the day, for a change, and is up around 0.3% to 0.6776. Yesterday’s batch of Chinese activity data showed GDP meeting expectations in Q2 while industrial production disappointed, but there was little market reaction. Likewise, there was no reaction to yesterday’s NZ PSI which fell significantly last month to 52.8 (from 57.1), to its lowest level since 2012. The PSI is the latest of a series of NZ economic activity indicators that point to downside risk to both our and the RBNZ’s GDP forecasts for this year. The market’s focus is firmly centred on CPI this morning.
The GBP is one of the worst performing currencies over the past 24 hours after Theresa May accepted four amendments to the Customs Bill from her Conservative Brexiteer contingent. It’s not an exaggeration to say UK politics is a shambles. Only last week, the UK released its White Paper outlining what it wanted from a future trading relationship with the EU. But amidst cabinet resignations and what was likely to have been a rebellion among Brexiteers to her bill, May has shifted stance already. The key amendment she accepted was that the UK would not collect duties or VAT on behalf of the EU (one of the cornerstones of her “facilitated customs arrangement”) unless the EU reciprocated. Brexiteers believe the EU would never agree to such a demand, meaning the proposal contained within the White Paper is now unworkable.
GBP dropped from 1.3270 to as low as 1.3217 after the news and is close to flat on the day against the US dollar. It’s hard to know how this all plays out, with parliament clearly divided between hard-line Brexiteers and those who want the UK to remain within the Customs union (or Single Market). Finding a compromise to bridge that divide has proved impossible thus far. Politics and Brexit is likely to remain a headwind for the GBP for some time.
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