Pound Slips against New Zealand Dollar (GBP/NZD) as Central Bank Comments Weigh

May 13, 2015 - Written by Toni Johnson

STORY LINK Pound Slips against New Zealand Dollar (GBP/NZD) as Central Bank Comments Weigh

RBNZ Comments Have Negative Impact on Kiwi Trading

The Pound experienced a day of choppy trading on Wednesday and fell against a host of other majors including the ‘Kiwi’. The New Zealand Dollar had been offered little support earlier in the session when the Reserve Bank of New Zealand Governor Graeme Wheeler reiterated his view that the ‘Kiwi’ exchange rate was still too high.

Wheeler suggests that despite a recent depreciation in the ‘Kiwi’, ‘we still think that the exchange rate is unjustified and unsustainable, so we’d like to see more movement downwards in the exchange rate.’

Additionally, the central banker discussed plans to tighten lending procedures for residential sales as Auckland’s housing market heats up.

Wheeler stated: ‘Prices in the Auckland region have become very stretched, increasing the risk of financial instability from a sharp correction in prices. [The RBNZ wants] to improve the resilience of the banking system to a potential downturn in the Auckland housing market.’

Therefore, the bank is enforcing stricter rules such as applicants needing a 30% deposit to apply.

UK Unemployment Dips, BoE Slashes Growth Forecast

The RBNZ said: ‘Banks will be expected to hold more capital against this asset class to reflect higher risks inherent in such lending.’

Meanwhile, the Pound had a mixed day that began with a fresh round of optimism. Joblessness within the UK fell from 5.6% to 5.5% in March; a surprising improvement for those economists who believed unemployment would stagnate. Additionally, UK wages began to record some decent expansion, climbing from a positively revised 1.9% to 2.2% in March, a shade higher than the 2.1% expectation. The surge in labour market expansion caused investors to re-evaluate the likelihood of higher borrowing costs in the near future. However, not everybody agrees.

Economist David Kern stated: ‘The quarterly fall in unemployment was the smallest since the summer 2013 and the youth unemployment rate is still almost three times as high as the national average. It would therefore be premature for the broad positivity in the latest jobs figures to lead to an early increase in interest rates. Businesses need a continued period of stability in order to deliver the growth and prosperity we want to see.’

The New Zealand Dollar could be in for some interesting movement later in Wednesday with the release of the New Zealand Business Performance of Manufacturing Index and New Zealand Retail Sales stats. The Business Performance of Manufacturing Index resided at 54.5 in March and any upward motion in the data could see the ‘Kiwi’ exchange rate climb.

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TAGS: Pound New Zealand Dollar Forecasts