GBP NZD Exchange Rate Forecast to Struggle on RBNZ Commentary, 'Brexit' Fears

June 9, 2016 - Written by John Cameron

STORY LINK GBP NZD Exchange Rate Forecast to Struggle on RBNZ Commentary, 'Brexit' Fears

Sterling seems likely to trouble the New Zealand Dollar in the near-term, owing to the latest doubts about a post-'Brexit' UK joining the single market lowering the Pound's value.

Reserve Bank of New Zealand (RBNZ) Surprise Markets by Keeping the OCR Unchanged

The Reserve Bank of New Zealand (RBNZ) announced yesterday evening that it would be maintaining its headline Official Cash Rate (OCR) at its current level of 2.25% and the New Zealand Dollar (currency : NZD) enjoyed sustained support in the global currency market today as a consequence.

The Pound Sterling New Zealand Dollar exchange rate was trading comfortably above the 2.0800 GBP NZD threshold during the lead-up to the decision, but by the time Europe’s equities traders got to their desks this morning, the pair had plunged down into the 2.0200s.

'Kiwi' - Positive Sentiment from RBNZ Commentary Supports NZD Gains

The move lower for the GBP NZD exchange rate was partly driven by a relief rally for the Kiwi Dollar which suggested that a fair percentage of investors had priced-in a rate cut for this month from the RBNZ.

Meanwhile, the tone of the monetary policy statement which was published concurrently by New Zealand’s central bank added to the Kiwi-positive sentiment. The main factor assisting the New Zealand Dollar in the RBNZ’s notes were the heavy hints that parts of the domestic housing market were beginning to overheat.

The statement noted that, ‘house price inflation in Auckland and other regions is adding to financial stability concerns. Auckland house prices in particular are at very high levels, and additional housing supply is needed.’ Investors took this assertion as a tacit admission that there is no short-to-medium term scope for another RBNZ rate cut.

The RBNZ also had some cautiously optimistic comments to make regarding the world economic picture, stating that, ‘global financial market volatility has abated and the outlook for global growth appears to have stabilised after being revised down successively over recent quarters. There has been a modest recovery in commodity prices in recent months. However, the global economy remains weak despite very stimulatory monetary policy and significant downside risks remain.’

While the messages from the RBNZ continue to suggest that no further loosening of monetary policy is imminent, the Pound Kiwi Dollar exchange rate is forecast to struggle.

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