A deal aimed at fixing post-Brexit issues in Northern Ireland stands to benefit New Zealand exporters.
The NZ dollar was trading at 51.09 British pence in afternoon trading in Wellington on Tuesday, February 28, versus 51.58 pence on Monday. It was the lowest since early November and traders expect the pound to continue to strengthen.
“It certainly removes one risk hanging over the GBP,” said BNZ senior markets strategist Jason Wong. “All good for the UK and exporters to the UK.”
British Prime Minister Rishi Sunak and European Commission president Ursula von der Leyen said the breakthrough will smooth trade between Northern Ireland and the rest of the UK.
The so-called Windsor Framework is aimed at resolving the ongoing social, economic and political difficulties caused by the Northern Ireland Protocol, which took effect in 2021.
Britain is Northern Ireland’s largest market, but the flow of goods from Britain to Northern Ireland has been disrupted due to the application of European Union customs and agrifood rules.
“This had been one of the major sticking points during Brexit negotiations, and the deal provides the opportunity for a potentially more harmonious relationship between the UK and the EU, post Brexit,” said Kiwibank economists.
It is expected to reduce much of the trade and logistics issues that have “plagued activity”, according to financial services company OFX.
“While the agreement still needs to be ratified in parliament, the mood is much improved.”
The news should be positive for global investors and for NZ exporters, given a layer of uncertainty has been removed.
A spokesperson from NZ’s Ministry of Foreign Affairs and Trade (MFAT) said while the Northern Ireland protocol is a matter for the UK, Ireland and the EU to resolve “we welcome reports of positive discussions between the parties concerned”.
According to a statement from Nigel Green, chief executive of independent financial advisory deVere Group, the deal will “significantly revive” business investment into the UK from global investors.
Green also expects the pound to continue to benefit.
“We expect the pound will enjoy a bounce amid hopes for improved trading relations between the UK and the EU, which bolsters investor sentiment on Britain’s economic outlook.”
The stronger pound means that NZ exports are more competitive, something that will also be good news ahead of the NZ-UK free-trade agreement (FTA).
The FTA was signed a year ago and is currently awaiting ratification from the UK.
The NZ-UK FTA applies to England, Northern Ireland, Scotland and Wales. It takes into account the effects of the Protocol, the MFAT spokesperson said.
“The NZ-UK FTA will support two-way investment between both countries. It contains investment rules that will provide transparency and certainty as to how NZ investors will be treated in the UK and vice versa.”