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Pound New Zealand Dollar (GBP/NZD) Exchange Rate Jumps as NZ to Suffer Worst Slump in 160 Years

June 24, 2020 - Written by John Cameron

Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Rises as RBNZ Leave Rates on Hold

The Pound Sterling New Zealand Dollar (GBP/NZD) exchange rate jumped by over 1% today. This left the pairing trading at around NZ$1.9453.

The New Zealand Dollar slumped against the Pound after the Reserve Bank of New Zealand (RBNZ) kept its official cash rate on hold at 0.25%.

In an emergency response to the coronavirus crisis, the RBNZ cuts interest rates by three-quarters of a percentage point, sending it to its lowest ever level. Economists expect rates to remain at 0.25% for at least this year.

The ‘Kiwi’ remained under pressure today as the bank said it expects the economy to suffer the worst contraction in at least 160 years.

In its bank statement, policymakers also noted that the stronger NZD put ‘further pressure on export earnings’.

The bank also agreed to continue with the $60 billion government bond buying programme. But the Monetary Policy Committee said it was committed to reviewing the size of the programme regularly.

In its statement, the RBNZ said:

‘New Zealand has contained the spread of Covid-19 locally for now, enabling a relaxation of social restrictions and an earlier resumption of domestic economic activity than assumed in our May Monetary Policy Statement.

‘The Government's intended fiscal stimulus, announced in its May Budget, was also slightly larger than we assumed. These outcomes give cause for some confidence but significant economic challenges remain.

‘The negative economic impact on New Zealand is exacerbated by the required international border restrictions, as the vast majority of the world battles to contain the pandemic.’

Sterling (GBP) Rallies despite Post-Brexit Trade Anxieties

The Pound was able to make significant gains against a weaker New Zealand Dollar despite growing Brexit uncertainties.
Worries about a post-Brexit trade deal between Brussels and London limited GBP gains.

Sterling was able to edge higher earlier after a jump in risk appetite. Tuesday saw upbeat data from the Eurozone, the USA and Britain. This increased hopes for a global economic recovery thanks to countries easing lockdown restrictions.

Meanwhile, British Prime Minister Boris Johnson unveiled new easing measures that are scheduled to take place across England from 4 July.

This includes a reduction of the two-metre social distancing rules as well as pubs and restaurants being able to reopen.

Although, this announcement was met with much criticism as many worried the easing of lockdown restrictions would spark a second wave of the virus.

In an open letter in the British Medical Journal, top medics in the country warned that the government was risking a high chance of local flare-ups of the coronavirus, as well as a high chance of a second wave.

According to ING strategists:

‘[Lifting the UK lockdown] does not alter the key GBP driving factor – the uncertainty about the UK-EU trade deal.

‘GBP to remain the European FX underperformer, despite the benign risk appetite.’

Pound New Zealand Dollar Outlook: Brexit Trade Negotiations in Focus

The Pound (GBP) could extend today’s gains against the New Zealand Dollar (NZD) on Thursday following data from the Confederation of British Industry (CBI).

If the latest data from the CBI reveals the pace of decline in trade has eased once again, it will offer Sterling an upswing of support.

However, the Pound could give up some of these gains as traders focus on trade relations between the UK and EU. Downbeat comments about trade relations between Brussels and London could send Sterling lower and leave the Pound New Zealand Dollar (GBP/NZD) exchange rate flat.

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