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Pound New Zealand Dollar (GBP/NZD) Exchange Rate Climbs on Hopes for Tomorrow?s UK Spring Budget Statement

March 12, 2018 - Written by Toni Johnson

Analysts Anticipate Upbeat UK OBR Forecast – Pound (GBP) Exchange Rate Outlook Climbs

The Pound New Zealand Dollar (GBP/NZD) exchange rate hit the ground running this week, climbing against the ‘Kiwi’ as markets prepared for the possibility of an upwardly revised growth forecast from the Office of Budgeting Responsibility.

UK Chancellor Philip Hammond will reveal the UK’s Spring Budget Statement tomorrow, and whilst no changes are expected from this rather low-key, 15-minute speech, investors will be keen to assess any titbits regarding the OBR’s economic outlook, particularly with the UK’s economic performance strengthening since last November.

The OBR’s current forecast is for growth to hit 1.4% this year and 1.3% next year, but the group has historically undershot in their assessments.

Analysts are now expecting that the OBR will shift forecasts up to 1.5% for both years, with Ian Stewart, Chief Economist at Deloittee asserting that they will remain cautious, but there’s ‘a decent chance they nudge up both years to 1.5%’.

He continued:

‘The good news is that the improving trend in public borrowing will enable the OBR to pencil in substantially lower numbers for public sector borrowing in the next two years. In terms of the government’s target of eliminating the current budget deficit, excluding investment, the Spring Statement seems likely to show that most of the hard work on deficit reduction has been achieved’.

Indeed, if this does occur then it might work to temporarily distract markets from the current Brexit negotiation gridlock, with an upbeat forecast also liable to raise anticipation for a rate hike in May from the Bank of England (BoE).

New Zealand Dollar (NZD) Exchange Rates Find Support as President Trump Prepares to Meet Kim Jong Un

The ‘Kiwi’ Dollar has seen surprising support in recent weeks, rising as US President Donald Trump agreed to meet North Korean leader Kim Jong Un to discuss nuclear disarmament.

This outlook was compounded by news that Kim Jong Un could be attempting to secure a peace treaty, with reports suggesting that he is even willing to offer the prospective release of international prisoners to try and curry America’s favour.

The possibility of de-escalation on the Korean peninsula has sent market risk appetite soaring, with markets quickly switching to the riskier commodity currencies like the New Zealand Dollar (NZD) and the Australian Dollar (AUD) as a result.

Beyond this, markets are growing increasingly optimistic that New Zealand could be exempt from the US import tariffs on steel and aluminium, with Australia very recently securing exemption of their own.

New Zealand Finance Minister Grant Robertson has announced that officials will look into the extent of the tariffs and how New Zealand might secure exemption, with news that a revamped version of the Trans Pacific Partnership deal was signed recently in Chile also providing slight support.

As the week progresses markets will be waiting with baited breath for any indication that New Zealand could also be exempt – an event that could put the GBP/NZD exchange rate under renewed pressure.

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Forecast: New Zealand GDP in the Spotlight

The Pound New Zealand Dollar (GBP/NZD) exchange rate could see significant movement on Wednesday as markets respond to New Zealand’s GDP readings for Q4 2017.

Markets are currently expecting a yearly reading of 2.5%, down from the previous period’s 2.7%, and a quarter-on-quarter reading of 0.7%, slightly up from the previous print of 0.6%.

Higher-than-expected growth would provide support for the ‘Kiwi’ Dollar and could tilt next week’s rate decision from the Reserve Bank of New Zealand (RBNZ) towards the optimistic end of the spectrum.
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