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Pound New Zealand Dollar (GBP/NZD) Exchange Rate Flounders Despite May Rate Hike Hopes

March 22, 2018 - Written by John Cameron

BoE McCafferty and Saunders Push for Rate Rise – GBP/NZD Exchange Rate Struggles to Capitalise



The Pound New Zealand Dollar (GBP/NZD) exchange rate traded slightly lower on Thursday, unable to fully capitalise on today’s rather hawkish Bank of England (BoE) rate decision and limited by the current upsurge in demand for the ‘Kiwi’ Dollar.

The BoE’s Monetary Policy Committee (MPC) voted 7-2 in favour of keeping interest rates on hold, with hawks Ian McCafferty and Michael Saunders pushing back against the majority on worries that inaction now, could mean that rates will need to rise faster and further in the future.

The minutes noted these concerns, reading:

‘These members noted the widespread evidence that slack was largely used up and that pay growth was picking up, presenting upside risks to inflation in the medium term. A modest tightening of monetary policy at this meeting could mitigate the risks from a more sustained period of above-target inflation that might ultimately necessitate a more abrupt change in policy and hence a greater adjustment in growth and employment’.

This paved the way for a rate hike in May and sent Sterling higher against most of the majors, but against the New Zealand Dollar the Pound failed to find much purchase, instead floundering within a narrow band.

Dairy Trade Prices Fall for Third Consecutive Time – New Zealand Dollar (NZD) Exchange Rates Unperturbed



The New Zealand Dollar (NZD) climbed against Sterling on Thursday, flying in the face of the recent fall in global dairy trade prices.

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Dairy prices dropped for their third consecutive time at the fortnightly auction as production in New Zealand continued to struggle to pickup from the recent drought induced levels seen earlier in the season.

New Zealand, being the world’s largest dairy exporter, has an intimate relationship with this auction - a relationship that would traditionally see the New Zealand Dollar suffer a parallel fall when prices drop.

Instead, it would appear that the current weakness of the US Dollar (USD) has kept it afloat, with markets fleeing the ‘Greenback’ due to the US Fed not explicitly calling for 4 rate hikes this year, rather than 3.

On a similar front, the Reserve Bank of New Zealand’s (RBNZ) voted against raising their baseline interest rate on this occasion, but Governor Grant Spencer did express some optimism for the economy, asserting that growth is ‘expected to strengthen by accommodative monetary policy, a high terms of trade, government spending and population growth’.

With markets already not expecting a rate hike on this occasion, however, the move had very little immediate effect on the strength of the ‘Kiwi’ Dollar.

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Forecast: US Attacks China on Trade



Sterling could find some room to rise against the New Zealand Dollar later this week as markets react to US President Donald Trump’s incoming range of protective tariffs against China.

Reports are currently circulating that President Trump will announce these sanctions later today or tomorrow, an event that could cause riskier, commodity based currencies like the New Zealand Dollar to fall once again.

This is largely because markets are concerned that China could respond with even more tariffs of their own, potentially escalating things into a global trade war that might curb demand for foreign exports, thus hurting the New Zealand economy.

The immediate reaction might drive markets to safe-haven currencies, but the medium-term reaction will likely be driven by how China responds.
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