NZD/GBP: Waiting game - ANZ

Brexit uncertainty remains high following last week’s election result and analysts at ANZ suggest that it is a waiting game as far as its impact on New Zealand is concerned, with currency movements having more impact in the interim.

Key Quotes

“Media commentary suggests a coalition will be soon formed though, and then the focus will turn to the real action of Brexit negotiations. The timetable for these are uncertain and for New Zealand it’s really what happens afterwards (via renewed bilateral ties) that will matter more. That means it is a waiting game for New Zealand, with currency movements having more impact in the interim.”

“To highlight the impact, you only need to look at the wine industry where the UK is a major market. Year-to-date export volumes have increased by a staggering 26% y/y despite in-market prices being little changed. Overall wine sales have thus fared better than initially thought. However, the higher NZD/GBP has cut local returns 21% to $5.19/l. This means that while higher volumes have been sold, total earnings in NZD terms are little changed. New Zealand wine already sits at the premium end of the price point spectrum, so while there is an opportunity to increase sales (in part due to a larger crop last year), it’s much more difficult to shift the end price point to compensate for the higher NZD/GBP.”