GBP NZD Exchange Rate Soars after BoE Dove Hints at 2017 Interest Rate Hike

June 21, 2017 - Written by Toni Johnson

STORY LINK GBP NZD Exchange Rate Soars after BoE Dove Hints at 2017 Interest Rate Hike

Sterling’s sharp rise against the New Zealand Dollar has been triggered by a statement from Andy Haldane, a long-time dovish BoE Monetary Policy Committee (MPC) voter.

Change of Heart from BoE’s Haldane Triggers GBP Advance

Although Wednesday had opened with traders focusing on the Queen’s speech, a more recent event had pushed up the Pound.

This has been a statement from BoE Chief Economist Andy Haldane. Haldane has notably changed his outlook on UK interest rates, implying that a rate hike could come later in the year;

‘Having weighed the evidence, I think that the balance of risks associated with tightening “too early” and “too late” has swung materially towards the latter. The risks of tightening “too early” have shrunk as growth and, to lesser extent, inflation have shown greater resilience than expected. If policy tightened “too late”, this could result in a much steeper path of rate rises later on, contrary to the MPC’s collective expectation that Bank Rate would increase “at a gradual pace and to a limited extent”’.

This news has been particularly positive for the Pound because Haldane has previously opposed UK interest rate hikes. This comes in the context of three of eight officials voting to raise interest rates at the last BoE meeting.

Just to summarise the Queen’s speech, a bulk of the proposed bills were focused on Brexit changes, while the overall message was watered down, as forecast. The Pound appreciated slightly on the news, before being sent much higher by Haldane’s comments.

NZD GBP Exchange Rate Dips despite 6-month High in Consumer Confidence

The New Zealand Dollar has recently dropped to 0.5708 against the Pound, having fallen from an earlier high of 0.5750.

This decline is mainly due to a recent jump in the Pound’s value, as the latest NZ news has been positive.

The ANZ Roy Morgan consumer confidence index has risen in June, from 123.9 points to 127.8.

This represented the best result since January 2017 and has additionally been the tenth month in a row that the figure has exceeded the average 119 point mark.

GBP NZD Forecast: Conservative-DUP Agreement could Restore Confidence in Sterling

The Pound may be moved in the near-term by news of a Conservative-Democratic Unionist Party (DUP) agreement.

Talks have recently run into trouble, with DUP officials warning that their party should not be ‘taken for granted’.

Speaking on the difficulties as well as possibilities of talks has been Damian Green, First Secretary of State;

‘There’s still the possibility, there’s every possibility of a DUP deal. The talks have been taking place in a constructive way. Clearly, two political parties, we have some differences. But we have a lot in common. We’re both unionist parties at our heart. We’re both obviously very concerned with combating terrorism, we both have similar views about delivering a good Brexit for this country and obviously, we’re both very, very concerned with the Irish border issue. But all talks of this kind take a long time, and they’re still continuing’.

If a deal is finally reached, the Pound could appreciate, as it will at least mean that an effective government is in place. If the unthinkable happens and the DUP pull out of talks due to differences then the Pound may conversely crash.

This outcome would open the door to a minority Conservative government, or a second general election. Both possibilities would be likely to plunge the GBP NZD exchange rate to fresh lows due to the associated panic and uncertainty.

Upcoming New Zealand news will focus on the Reserve Bank of New Zealand (RBNZ), as well as national credit card spending recorded in May.

In the former case, the RBNZ will be deciding on NZ interest rates today. Policymakers are expected to leave rates at 1.75%, but statements afterwards could still boost the NZD if they are sufficiently optimistic.

Also out today will be annual visitor arrival stats for May. These previously rose by 21.5%, so another rise could increase trader optimism.

More visitors can equate to greater spending in New Zealand’s tourist industry, which will raise the national services activity index.

On Thursday, NZ card spending data may also raise the New Zealand Dollar if it shows continued growth.

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TAGS: Pound New Zealand Dollar Forecasts