NZ dollar gains vs pound as UK PM May's leadership back in the spotlight
By Paul McBeth
July 9 (BusinessDesk) - The New Zealand dollar gained against the British pound in local trading after the resignation of chief Brexit negotiator David Davis reignited uncertainty over Prime Minister Theresa May's grip on the Conservative Party.
The kiwi traded at 51.42 British pence as at 5pm in Wellington from 51.25 pence before Davis's announcement, and 51.30 pence on Friday in New York. The kiwi was unchanged at 68.39 US cents from last week.
The pound gave up recent gains during Asian trading after Davis's unexpected resignation as Brexit secretary over what he described as a "general direction of policy [that] will leave us in at best a weak negotiating position, and possibly an inescapable one". May's Cabinet backed a 'soft' Brexit after an all-day retreat, with proposals including a free trade area which would establish common rules for industrial and agricultural goods.
"The elephant in the room - what does it mean for her leadership? Is it on tenterhooks now, and if so what does that say for the political stability of her government and the UK more generally," said ANZ Bank New Zealand senior macro strategist Philip Borkin. The pound "finished stronger last week, opened up stronger, but has come off those highs - the moves have been relatively modest considering the headlines."
Local trading was relatively quiet with the start of school holidays, and investors will take their cues from overseas leads, including the fall-out in the trade war between the US and China. The US formally imposed tariffs on US$34 billion of Chinese imports on Friday, prompting Asia's biggest economy to retaliate and investors are now awaiting the response from US President Donald Trump, who has threatened to escalate tariffs if the Chinese responded in kind.
The kiwi fell to 91.65 Australian cents from 91.81 cents last week and declined to 4.5268 Chinese yuan from 4.5329 yuan. It increased to 75.52 yen from 75.42 yen last week and was unchanged at 58.14 euro cents. The trade-weighted index rose to 72.78 from 72.44 last week.
New Zealand's two-year swap rate was unchanged at 2.17 percent, as were 10-year swaps at 3.03 percent.