GBP to NZD Exchange Rate Tumbles Towards 2-Month-Low on RBNZ News

June 22, 2017 - Written by Ben Hughes

STORY LINK GBP to NZD Exchange Rate Tumbles Towards 2-Month-Low on RBNZ News

This week’s Bank of England (BoE) news has left the British Pound to New Zealand Dollar exchange rate volatile, as investors wonder whether or not to bet on a 2017 UK interest rate hike. The New Zealand Dollar’s strength has kept GBP/NZD near its worst levels however.

After opening this week at the level of 1.7625, GBP/NZD dropped and by the middle of the week had hit a two-month-low of 1.7390. The pair’s recovery was limited and on Thursday the pair remained below the key 1.75 level.

GBP Strength Limited on Political and Economic Uncertainty

Despite hawkish comments from Bank of England (BoE) chief economist Andy Haldane, the Pound has been unable to recover much this week due to persistent uncertainty about Britain’s political and economic outlooks.

Haldane stated on Wednesday that the BoE could be pressured by surging UK inflation to hike interest rates and tighten some of the bank’s stimulus measures by the end of the year.

However, he indicated that Britain’s economy would need to be resilient in the coming months for this to be likely. Recent signs have pointed towards slowdown in Britain’s economy, such as slowing wage growth and lower retail activity amid surging inflation.

His speech also came just one day after a heavily dovish speech from BoE Governor Mark Carney, who stated Britain wasn’t ready for higher interest rates. This indicated that some BoE policymakers were still resisting any hawkishness.

As well as uncertainty about the BoE and economic outlook, investors remain uncertain about Britain’s political situation.

The Conservative party, which intends to lead a minority government following a ‘hung parliament’, has reportedly struggled to easily secure the support of Northern Ireland’s Democratic Unionist Party (DUP).

NZD Demand Increases as RBNZ Shrugs off Currency’s Value

The New Zealand Dollar has been a popular investment this week despite poor performance in commodity markets. The currency’s high yields as well as the Reserve Bank of New Zealand’s (RBNZ) passive attitude to it have left it in demand.

The RBNZ held its June monetary policy decision during Thursday’s Asian session and as expected left interest rates frozen at their record-low level of 1.75%.

Some analysts had expected the bank to express concern about the strong New Zealand Dollar, so markets were surprised by the bank’s tame language on exchange rates. Analysts from Credit Agricole stated;

‘While the RBNZ kept a neutral stance and continued to pledge to keep rates low for a long time, it did not complain strongly about the currency’s recent strength, which caused the New Zealand dollar to rise post the decision’

The bank was largely unfazed by the currency’s recent strength because export prices had also risen recently.

While commodities like oil and New Zealand’s primary export, dairy, have weakened this week, the ‘Kiwi’ remained in high spirits.

GBP/NZD Forecast: UK Political Developments Could Influence Pound

Sterling remains weighed down by political and economic concerns which has prevented it from recovering over the past week.

While the Queen’s speech was held on Wednesday and Brexit negotiations also began this week as expected, investors remain uncertain that Britain’s current political situation will last in the long-term.

The Conservative party continues talks with the DUP with the intention of running a minority government with the DUP’s support.

Critics among Conservative backbenchers and opponents continue to argue that UK Prime Minister Theresa May should step down from her role after her mishap in calling a general election – which ended up weakening the Conservative party.

Potential developments in British politics have the potential to influence the Pound. If stability improves the Pound will strengthen but if the Conservative party’s power falls further into question the Pound will drop.

Next week will see the publication of key UK ecostats including a consumer confidence survey for June from GfK, as well as Britain’s final Q1 Gross Domestic Product (GDP) results. These reports have the potential to influence the Pound.

New Zealand’s economic calendar for next week includes trade data from May and ANZ’s business confidence survey for June.

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TAGS: Pound New Zealand Dollar Forecasts