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Pound New Zealand Dollar (GBP/NZD) Exchange Rate Sinks despite Five-Year Low NZ Growth Figures

June 20, 2019 - Written by John Cameron

GBP/NZD Exchange Rate Falls despite Rising RBNZ Rate Cut Fears

The Pound New Zealand Dollar (GBP/NZD) exchange rate fell today and is currently trading around NZ$1.9295 on the interbank market.

The New Zealand Dollar (NZD) exchange rate rose following last night’s publication of the NZ GDP figures for the first quarter, with the quarterly figures increasing by 0.6%.

Annual GDP figures, however, rose above the forecast easing of 2.4% to 2.5%.

Jeremy Couchman, a Senior Economist at Kiwibank, was dovish, however, saying:

‘The economy is growing below its potential and with other central banks cutting rates or looking to add stimulus, the [Reserve Bank of New Zealand] has more to do to ensure inflation can get back to target.’

New Zealand’s growth figures, however, have failed to inspire NZ markets, with the figures coming in at a five-year low.

While growth concerns have caused some ‘Kiwi’ traders to remain cautious, talks of a possible RBNZ rate cut are tending to hold back the NZD/GBP exchange rate.

An Economist at Capital Economists, Ben Udy, confirmed these fears, saying:

‘If we're right that may prompt the RBNZ to cut rates once more to a new record low of 1.25 per cent before the end of the year.’

GBP/NZD Exchange Rate Eases as BoE Slashes Growth Forecast

Sterling failed to benefit from the Bank of England’s (BoE) interest rate decision, which was held at 0.75%.

As many major banks have become increasing dovish – with the US Federal Reserve forecasting potential rate cuts – the UK’s central bank is remaining remarkably resilient, despite the ongoing trade war and signs of a global economic slowdown.

Allan Monks, an Economist at JP Morgan weighed in, saying:

‘One interpretation of recent [of the BoE’s Monetary Policy Committee’s] commentary is that it is motivated by a desire to push back on the need to cut rates.’

However, the BoE did show increasing dovishness today, slashing its growth forecast, and lowering the chances of any foreseeable rate hikes in the near future.

Nancy Curtin, a Chief Investment Officer at Close Brothers Asset Manage, was downbeat, saying:

‘With Brexit unresolved, it is now practically inconceivable that there will be a rate hike between now and October, despite GDP growth being close to potential.’

Today also saw the fourth Tory leadership ballot, which saw Boris Johnson extend his lead, while Savid Javid was knocked out – leaving only Jeremy Hunt and Michael Gove as potentials in the final few votes.

GBP/NZD Outlook: Tory Leadership to Remain in Spotlight

Sterling traders will be looking ahead to tomorrow’s printing of the UK public sector net borrowing figures for May, which are expected to increase at £5.100bn.

This will be followed by the BoE’s quarterly bulletin for the second-quarter, and with any signs of further dovishness, this could weaken the GBP/NZD exchange rate.

New Zealand Dollar investors, meanwhile, will be focusing on global economic and political developments, with the US-China trade war remaining in focus.

The risk-averse ‘Kiwi’ could benefit from a consensus emerging between the two superpowers.

The Pound New Zealand Dollar exchange rate will be driven by political developments into next weekend, with the Tory leadership race remaining in focus.
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