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GBP to NZD Exchange Rate Steadies Ahead of Key Reserve Bank of New Zealand Decision

February 12, 2019 - Written by Tim Boyer

While poor UK data has dragged the British Pound to New Zealand Dollar (GBP/NZD) exchange rate lower since the weekend, the pair edged away from its lows and steadied on Tuesday afternoon as investors anticipated the Reserve Bank of New Zealand’s (RBNZ) upcoming February policy decision.

GBP/NZD losses have been relatively modest too, at least compared to last week’s strong surge from 1.8960 to 1.9184. GBP/NZD has lost around half a cent this week so far and trended close to the level of 1.9124 at the time of writing.

The primary reason for the Pound’s losses this week has been concerning UK data showing surprising contractions in some economic activity.

The New Zealand Dollar has also benefitted from higher market demand for risky trade-correlated currencies amid US-China trade hopes, but its gains have been limited by market uncertainty ahead of Wednesday’s key Reserve Bank of New Zealand (RBNZ) decision.

GBP Exchange Rates Remain Unappealing as Brexit Uncertainty Dampens Economic Activity

Uncertainty over how the Brexit process will unfold is making businesses hesitant to operate at full capacity, as the outlooks in both the short and long-term are filled with questions over the future of Britain’s economy.

This is starting to show more and more in UK data, as Monday’s slew of ecostats revealed a concerning number of contractions in production and business investment figures.

Industrial production came in at -0.9% year-on-year, and manufacturing production came in at a concerning -2.1% year-on-year.

Meanwhile, business investment slumped to a shocking -3.7% year-on-year.

Due to the weaker activity, Britain’s Gross Domestic Product (GDP) growth rate slumped to -0.4% month-on-month in December.

These stats made investors and economists even more concerned about Britain’s economic outlook amid Brexit uncertainties, and the growth was on track to be worse than the Bank of England (BoE) had predicted.

According to Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC):

‘It is increasingly likely that the slowdown at the end of 2018 will persist as continued Brexit uncertainty and the raised possibility of a no-deal exit from the EU weigh heavily on UK’s growth prospects. Firms are increasingly reporting having to divert staff, money and investment to protect against the chaos of a no-deal Brexit.’

NZD Exchange Rates Steady as Investors Anticipate Central Bank News

Demand for the New Zealand Dollar briefly rose on Monday night and Tuesday, as investors digested hopeful signals from resumed US-China trade negotiations.

US President Donald Trump indicated he was eager to meet with China President Xi Jinping soon, bolstering hopes that the nations could be closing in on some kind of resolution to trade tensions.

This made investors hungrier for risky trade-correlated currencies like the New Zealand Dollar, but the New Zealand Dollar’s appeal was limited later in the session by Central Bank uncertainty.

The Reserve Bank of New Zealand (RBNZ) will be holding its February policy decision during Wednesday’s Asian session.

Market concerns that the RBNZ could deliver a more dovish than expected signal or hint at potential interest rate cuts are dampening market demand for the New Zealand Dollar.

GBP/NZD Exchange Rate Forecast: Dovish RBNZ Could Lead to Pound Rebound

While upcoming Brexit developments and UK data could prove influential, the Pound to New Zealand Dollar is most likely to be influenced by the tone the Reserve Bank of New Zealand (RBNZ) takes in its upcoming February policy decision.

The RBNZ will hold its February decision during Wednesday’s Asian session. While the bank is not expected to make any changes to New Zealand monetary policy, many analysts predict the bank could hint that an interest rate cut is possible soon.

Recent comments from the bank have been fairly neutral, but a combination of weaker New Zealand data and slowing global growth recently have left analysts predicting that the bank may be more dovish than markets expect.

If the bank signals that New Zealand interest rate cuts are possible, the New Zealand Dollar could be in for a slump and GBP/NZD would rebound more strongly from this week’s lows.

Other news to keep an eye out for includes Britain’s January inflation rate tomorrow, which could influence Bank of England (BoE) interest rate hike bets if they surprise investors and drive the Pound to New Zealand Dollar exchange rate.
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