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Pound New Zealand Dollar (GBP/NZD) Exchange Rate Climbs as NZ Inflation Expectations Dip

May 8, 2018 - Written by John Cameron

UK House Prices see Sharp Fall – GBP/NZD Exchange Rate Unperturbed

The Pound New Zealand Dollar (GBP/NZD) exchange rate continued its climb on Tuesday, unperturbed by a sharp decline in UK house prices and capitalising on a disappointing fall in New Zealand inflation expectations.

According to the latest Halifax house price survey, homes in the UK saw a -3.1% fall in prices in April – the largest fall since September 2010.

This fall put investors on edge somewhat, but given the fact that unemployment and borrowing both remain low, it is unlikely that homeowners will be under any pressure to sell.

As a result, this news had little effect on the GBP/NZD exchange rate, particularly in light of the US Dollar’s own rally curbing demand for the riskier commodity currencies.

New Zealand Inflation Expectations Fall – New Zealand Dollar (NZD) Exchange Rates Tumble

The ‘Kiwi’ Dollar struggled on Tuesday, limited by news that New Zealand businesses are predicting a slower pace of inflation in the coming year.

According to the Reserve Bank of New Zealand’s (RBNZ) survey of expectations, consumer prices will reach 1.8% over the coming year, lower than the 1.86% predicted in the March quarter, but higher than the current 1.1% pace.

The two-year inflation expectations also declined, this time to 2.01%, down from 2.11%.

Weak consumer price inflation has been an ongoing issue for New Zealand in recent years, with the strong currency and flat wage growth generally restraining price increases.

As a result, the gloomy forecast continued to weigh on demand for the ‘Kiwi’ Dollar.

BoE Rate Decision on Super Thursday – What can we Expect for the Pound New Zealand Dollar (GBP/NZD) Exchange Rate?

The big-ticket event for the markets this week will be the Bank of England (BoE) rate decision - colloquially dubbed ‘Super Thursday’ - which will have the potential to make or break the Pound’s lead against the New Zealand Dollar.

Analysts are not currently expecting a rate rise on this occasion due to the recent disappointing Q1 GDP growth and April PMI readings, but there is still the possibility that the accompanying statement and press conference could include some hawkish or optimistic remarks.

Indeed, the central bank could be pushed towards keeping a balanced statement in order to save face after repeatedly asserting that a rate hike was so likely in May.

Beyond this, there is still the fact that wage growth has steadily accelerated, inflation remains above target levels and unemployment continues to hold at record lows.

All of these factors should keep a rate hike on the table for later in the year.
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TAGS: Pound New Zealand Dollar Forecasts

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