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GBP to NZD Exchange Rate Surges to Monthly Best on Reserve Bank of New Zealand’s Shocking Rate Cut

August 7, 2019 - Written by David Woodsmith

Due to global trade tensions and central bank speculation, the British Pound to New Zealand Dollar (GBP/NZD) exchange rate has seen stronger movement since its recovery last week. Overnight, a shockingly deep interest rate cut from the Reserve Bank of New Zealand (RBNZ) caused the New Zealand Dollar to plummet, making further recovery for the pair much easier.

Last week saw mixed movement in GBP/NZD, as the pair opened the week at the level of 1.8658 and briefly slumped to a 2019 worst level of 1.8296 before recovering and closing the week a little lower at the level of 1.8591.

GBP/NZD spent most of Monday and Tuesday trending narrowly as investors anticipated last night’s RBNZ news. When the bank finally did hold its August policy decision during today’s Asian session, GBP/NZD surged and briefly touched on a high of 1.9016 – the best level for the pair since June.

At the time of writing, GBP/NZD was trending closer to the level of 1.8867. This still put it close to its best levels in almost a month.

GBP Exchange Rates Struggle to Sustain Gains as Political and Brexit Fears Dominate

The Pound, still embattled from weeks of rising no-deal Brexit fears and other political uncertainties, remains a currency that investors are hesitant to buy even against plummeting rivals.

Since Boris Johnson became Britain’s new Prime Minister and formed his government at the end of July, no-deal Brexit fears have been gradually worsening.

The government continues to indicate that it would rather aim for a no-deal Brexit than pass a Brexit deal that includes the controversial Irish backstop.

On top of no-deal Brexit fears though, the Pound is also increasingly pressured by other UK political uncertainties. Speculation is rising that the new government could face a no-confidence vote when Parliament returns from summer recess.

This could help to prevent a no-deal Brexit, but would also make a general election much more likely.

According to Derek Halpenny, Head of Research at Mitsubishi UFJ Financial Group (MUFG):

‘There are many key dates ahead for Sterling, but the passing of 5 September without a successful of no confidence in the government will in our view be a further important step along the road of a no-deal Brexit on 31 October.’

NZD Exchange Rates Plummet as Reserve Bank of New Zealand Makes Shock Rate Cut

Markets had been widely expecting the Reserve Bank of New Zealand (RBNZ) to make a standard, 25 basis point interest rate cut to New Zealand’s monetary policy during its policy decision today.

However, the bank’s decision ended up being much more dovish than expected.

The RBNZ shocked markets by cutting New Zealand interest rates 50 basis points, from 1.5% to 1.0%. On top of this, the bank also indicated that it could consider taking interest rates as low as zero or negative if necessary.

Due to how shockingly dovish the bank was despite some strength in recent New Zealand data, analysts are fully anticipating a further 25 basis point cut in November. According to Dominick Stephens, Westpac NZ’s Chief Economist:

‘This was a stunning decision,

The RBNZ appears to be trying to get ahead of the curve,

Given its clear willingness to reduce rates, and our view that there is some further economic softness to come in the near term, we now expect another 25bp cut in November.’

The New Zealand Dollar plummeted across the board in response to the news. As a trade-correlated currency, the ‘Kiwi’ is also being weakened by US-China trade tensions this week.

GBP/NZD Exchange Rate Forecast: Brexit and UK Politics in Focus amid Quiet New Zealand Economic Calendar

Pound to New Zealand Dollar exchange rate investors are anxious about geopolitics and central bank news this week, and these factors are likely to remain in focus in the coming sessions.

Amid a lack of notable New Zealand data due for publication in the coming sessions though, there is little on the way to influence Reserve Bank of New Zealand (RBNZ) policy speculation.

As a result, New Zealand Dollar investors will be carefully watching for developments in US-China trade tensions that could influence the trade-correlated ‘Kiwi’.

Any surprising comments from the Reserve Bank of Australia (RBA) could also be influential.

While geopolitics and central bank news influence NZD, GBP is likely to be driven by potential developments in Brexit and UK politics.

Friday’s UK ecostats, including growth rate and business investment figures, could also influence the Pound to New Zealand Dollar exchange rate if there are no notable political developments.
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