Pound New Zealand Dollar Outlook Hinges on NZ Property Market and Interest Rates

Published: Wednesday, 10 August 2016 10:00 BST - Written by John Cameron

STORY LINK Pound New Zealand Dollar Outlook Hinges on NZ Property Market and Interest Rates

NZD Exchange Rate Volatility Forecast, RBNZ Decision Ahead

Today’s session is peppered with significant data releases and risk events but investors will have to wait until later this evening for perhaps the most interesting development of the day. The Reserve Bank of New Zealand (RBNZ) benchmark interest rate already stands at a record low of 2.25%, but the consensus view amongst analysts is that the Southern Hemisphere central bank will trim its Official Cash Rate (OCR) to a fresh all-time low of 2.0%.

The ASB Bank expected the rationale behind these expectations in a note to market participants earlier this week, stating that New Zealand’s,

‘Wage growth is muted, pricing intentions in business surveys remain weak and the recent decline in petrol prices is likely to drive headline annual inflation close to zero in the third quarter of 2016 which could prompt renewed declines in inflation expectations.’

Rate Cut Expected, GBP/NZD Currency Pair Could Climb

The confidence from Kiwi-watchers that Graeme Wheeler’s RBNZ is about to further loosen its monetary policy following last month’s warning from the Kiwi lender of the last resort that the nation’s local currency ‘needed’ to be weaker. The use of this solitary verb in describing the current state of the Kiwi Dollar has convinced analysts that the RBNZ is about to launch a big bazooka aimed at weakening the New Zealand unit.

However, the one factor potentially stopping another Kiwi rate drop is the fact that the New Zealand property market continues to storm ahead. Average house prices increased by a hefty year-on-year 13% during the twelve months to the end of June – their fastest pace since 2004. This means that the average Kiwi property now costs a whopping $590,909 – an amount which has increased by over NZD10,000 per month every month over the past year. Assessing these alarming numbers, QV (who carried out the research), noted that the RBNZ is considering macro-prudential measures to cool this overheating. Their report stated that,

‘The Reserve Bank is considering introducing further restrictions on property investors and it appears this may have led to a surge in investor purchases in various housing market around the country over the past month.’
QV went on to assert that,


‘With the proposed Auckland unitary plan implementation recommendations due this month, it's hoped this will provide for much needed new housing supply and infrastructure for the growing super city region to alleviate upward pressure on property values.’

Pound Predicted to Achieve 1.90 Vs the New Zealand Dollar Today

If the RBNZ’s policymakers surmise that these actions will give them enough leeway to further reduce the cost of borrowing in New Zealand, then analyst forecast that the Pound Sterling New Zealand Dollar exchange rate could recover to trade up towards the 1.9000 GBP NZD threshold in the short-to-medium term.

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