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Pound New Zealand Dollar (GBP/NZD) Exchange Rate Bolstered as RBNZ Leaves Negative Rates on the Table

May 13, 2020 - Written by Frank Davies

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Rallies as RBNZ Fails to Rule out Negative Rates

A dovish message from the Reserve Bank of New Zealand (RBNZ) helped to push the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate higher.

While policymakers left interest rates on hold at 0.25%, as anticipated, investors were spooked by the central bank’s failure to rule out the possibility of negative interest rates.

With the possibility of future policy easing still on the table the mood towards the New Zealand Dollar naturally soured, even though negative rates remain an outside chance.

As the RBNZ made its commitment to cushion the economic impact of the Covid-19 crisis clear NZD exchange rates were left to trend sharply lower across the board on Wednesday.

Comments from Federal Reserve Chari Jerome Powell also put pressure on the New Zealand Dollar as he poured cold water on the possibility of negative US interest rates, driving a surge in market risk aversion.

Pound Sterling Upside Limited as UK Gross Domestic Product Slides to 12-Year Worst

However, the appeal of Pound Sterling proved largely limited in the wake of the first quarter UK gross domestic product report.

Although the quarterly growth rate was not quite as weak as forecast, clocking in at -2.0% rather than -2.5%, this was not enough to prevent GBP exchange rates weakening.

This decline takes quarterly growth to its lowest level since the end of 2008 and the height of the financial crisis, making clear the economic fallout of the global pandemic.

As the first quarter report only includes the first two weeks of the UK lockdown markets see a significant risk of the growth rate taking an even larger hit in April.

With the UK economy still appearing on course to shed significant momentum in the second quarter, pushing the economy into a state of recession, there was little reason to favour the Pound over its rivals.

Nevertheless, the GBP/NZD exchange rate held onto a positive footing thanks to the weak performance of the New Zealand Dollar.

Weak New Zealand Manufacturing and Services PMIs Forecast to Drag on NZD Exchange Rates

Support for the New Zealand Dollar could weaken further in the days ahead, meanwhile, on the back of the latest New Zealand manufacturing and services PMIs.

Confirmation that both sectors experienced a contraction in March would add to existing worries over the resilience of the New Zealand economy.

Even though the country is already moving towards normalisation, thanks to the lifting of a number of lockdown restrictions, the New Zealand Dollar remains vulnerable to market risk aversion.

As long as investors see reason to fear the possibility of a resurgence in Covid-19 infections a sense of market jitters could limit the downside potential of the GBP/NZD exchange rate.
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