Despite valiant attempts to rally on Wednesday evening, the Euro collapsed against the New Zealand Dollar again overnight, reaching a new two-week low as a leading German Bank predicted that the Eurozone could face a crisis worse than the ‘fall of Lehman Brothers’.
Analysts at Deutsche Bank released a report warning about the potential consequences of the French electorate voting for far-right candidate Marine Le Pen in this year’s presidential elections.
Le Pen plans to hold a referendum on EU membership if she is elected in May, basing a potential ‘Frexit’ on Britain’s decision to leave the Union last year.
The National Front leader points to the relatively low impact of Brexit on the UK economy as evidence that economic doomsayers were wrong about leaving the EU, saying;
‘They told us that Brexit would be a catastrophe, that the stock markets would crash … The reality is that none of that happened.’
This is something that has particularly worried Deutsche Bank, however, as it warns that there are huge differences between the situations in the UK and France, with France’s status as the second largest economy in the Eurozone likely to risk the stability of the single currency if the country votes to revoke its membership.
With support for Le Pen surging in recent polls the warning has placed EUR NZD under renewed pressure as investors fear that a ‘Frexit’ is a real possibility.
These worries have also stalled an attempted recovery by the Euro this morning as Germany’s latest GDP data impressed investors.
Germany reportedly became the fastest growing G7 economy in 2016 as its fourth quarter growth figures rose by 0.4%, bringing year-on-year growth to 1.9% – remaining resilient despite rising political uncertainty last year. As Bloomberg’s Carolynn Look explained;
‘Germany’s performance in the fourth quarter suggests the economy is sturdy enough to cope with challenges that may arise from national elections, Brexit, and a more protectionist US administration.’
The uptick was largely prompted by solid state spending and construction investments, although it was hindered slightly by net trade figures as data revealed that imports outpaced exports, causing a slight decline investment.
However, the underlying political uncertainty in the Eurozone and a slight decline in German Consumer Confidence prevented EUR NZD from stabilising at higher levels and it quickly fell once again.
Meanwhile the New Zealand Dollar was strengthened by a report from the Ministry of Business, Innovation and Employment (MBIE) that New Zealand’s economy continued to benefit from solid tourism last year.
Tourism Minister Paula Bennett said;
‘The International Visitor Survey showed spending reached $10.1 billion in the year to December 2016, confirming that the tourism sector is hugely important to our economy.’
Figures showed that the sector also employed over 180,000 people in 2016, with predictions that this is set to climb in 2017 helping market sentiment recover after the recent rise in the unemployment rate.
Looking ahead, EUR NZD is likely to fall further if growing political uncertainty negatively impacts tomorrow’s French Consumer Confidence survey as analysts predict it could slip from a nine-year high of 100 in February.
Meanwhile a lull in domestic data may leave the New Zealand Dollar rudderless for the remainder of the week, with the next major release being Monday’s Balance of Trade figures.
Current Interbank Exchange Rates
At the time of writing the EUR NZD exchange rate was trending around 1.46 and the NZD EUR exchange rate was trending around 0.68.