Rising UK Inflation Prompted Bullish Run for GBP NZD Exchange Rate

March 21, 2017 - Written by Tim Boyer

STORY LINK Rising UK Inflation Prompted Bullish Run for GBP NZD Exchange Rate

The British Pound to New Zealand Dollar exchange rate fell back towards the week’s opening levels from its weekly highs as the Pound’s inflation-inspired rally ran out of steam.

New Zealand Dollar investors are likely to firm in the ‘Kiwi’ ahead of the Reserve Bank of New Zealand’s (RBNZ) policy decision, which takes place in Thursday’s Asian session.

[Previously updated 22/03/2017]

Ahead of tonight’s Reserve Bank of New Zealand policy meeting the GBP NZD exchange rate remained on a narrow uptrend.

Confidence in the Pound could weaken further, however, as the Markit household finance index pointed towards a sharp decrease in consumer confidence.

[Previously updated 21/03/2017]

An unexpectedly bullish raft of UK data saw the Pound Sterling New Zealand Dollar (GBP NZD) exchange rate trending higher on Tuesday, extending its gains as risk appetite weakened.

GBP Trended Higher after Inflation Bettered Forecast

February’s UK consumer price index surprised to the upside, with inflation rising 2.3% on the year and climbing back into the Bank of England’s (BoE) target range.

As analysts at Scotiabank noted:

‘The data, viewed in the context of last week’s more-hawkish-than-expected BoE meeting & minutes, have firmed expectations for BoE tightening and pushed expectations of a Q1 2018 hike above 50%.

However, we are cautious on the basis of considerable near-term risk as we look to the anticipated March 29 trigger of Article 50.’

While this indicated that inflation is starting to outpace wage growth, which has been slowing in recent months, the mood towards the Pound remained positive.

A lower-than-expected public sector net borrowing figure also boosted the appeal of Sterling, with the government only borrowing an extra 1.1 billion in February.

Weaker Consumer Confidence Limited NZD Demand

Demand for the New Zealand Dollar, meanwhile, weakened in response to disappointing credit card spending data.

Spending was found to have contracted -1.4% on the month in February, pointing towards a weakening in domestic consumer confidence.

Although the US Dollar slumped across the board the commodity-correlated ‘Kiwi’ was unable to capitalise on its weakness, with the general market mood remaining risk averse.

While the latest GlobalDairyTrade auction demonstrated a fresh uptick in prices this was not enough to dent the GBP NZD exchange rate, as investors began to adopt positions ahead of the Reserve Bank of New Zealand (RBNZ) policy meeting.

GBP NZD Exchange Rate Forecast: UK Retail Sales to Rise

The mood towards the ‘Kiwi’ is likely to remain relatively muted as markets await the RBNZ decision on Thursday, although an improvement in risk appetite could boost it.

If US policymakers continue to adopt a more cautious view on interest rates, indicating that the pace of monetary tightening is likely to be more gradual, this could give the New Zealand Dollar some support.

Domestic political developments could see the Pound struggle to hold onto its recent gains, with investors expected to show increasing jitters as the activation of Article 50 approaches.

However, Sterling could find further cause for confidence if February’s UK retail sales data proves positive.

Even though consumer spending looks set to diminish in the coming months a strong showing here could still give investors reason to favour GBP exchange rates in the short term.

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TAGS: Daily Currency Updates Pound New Zealand Dollar Forecasts