GBP/NZD Outlook: Pound to New Zealand Dollar Exchange Rate Falls on BoE Inflation Report

November 12, 2014 - Written by Frank Davies

STORY LINK GBP/NZD Outlook: Pound to New Zealand Dollar Exchange Rate Falls on BoE Inflation Report

The Pound to NZ Dollar (GBP/NZD) exchange rate sank on Wednesday as a result of a dovish Bank of England (BoE). Conversely, the NZD was offered some support by the Reserve Bank of New Zealand’s (RBNZ) Financial Stability Report.

The report stated: ‘The New Zealand financial system remains sound and continues to operate effectively. The banking system is well capitalised, funding and liquidity buffers are above required minima, and non-performing loans continue to decline. Stress tests of all the major banks’ portfolios undertaken over the past six months demonstrate that each bank has the capacity to manage a range of significant negative events.’

New Zealand Housing Market Still at Risk says RBNZ

Moreover, the report discussed restrictions on mortgages in New Zealand (LVR speed limit)—a measure that was put in place to cool the overheating housing market. The central bank suggested that the measure was temporary and would be removed at the point in which house price stability was achieved. The report suggested that with strong immigration levels into New Zealand, the housing market was at risk from resurgence in prices.

With domestic data in short supply for the remainder of the week, the New Zealand Dollar may feel the impact of the New Zealand Business Performance of Manufacturing Index on Wednesday, as well as Consumer Confidence figures on Thursday. Furthermore, the release of Chinese data may offer the ‘Kiwi’ commodity currency some support on Thursday. China is New Zealand’s largest trading partner and therefore any favourable developments in one of the world’s largest economies can have a direct impact on the NZD.

Meanwhile, the Pound experienced a bumpy ride on Wednesday when UK wage growth surprised to the upside and beat economists’ forecasts. Average Weekly Earnings grew by 1.0% in the three months through September, a better leap than the 0.8% expectation.

Pound to NZ Dollar Exchange Rate Pressured Lower after BoE Inflation Report Disappoints

However, after making small advances against other majors on the release of the results, the Pound was later forced to retrace its steps. Wednesday’s European session saw the Pound tumble when the Bank of England released an Inflation Report which cut both growth and consumer price forecasts. According to the central bank, a global slowdown and fatigue from the Eurozone has slowed UK growth. Therefore, interest rate hikes are more likely to be seen in late 2015 than in the first quarter of next year as some economists had forecast.

As a result, the UK may not be the first of the Group of Seven (G7) developed nations to hike interest rates since the initial onset of the global financial crisis. However, despite recent speculation that the Monetary Policy Committee (MPC) wouldn’t raise rates near the general election next May, BoE Governor Mark Carney rebuffed this claim. In a press conference following the Inflation Report release Carney stated that central bank policy will be determined by the central bank regardless of political pressures.

Influential UK data is thin on the ground in the remainder of the week, leaving Pound Sterling movement a result of any international developments.

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