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GBP to NZD Exchange Rate Struggles to Gain as Markets Await New Zealand Growth Report

September 16, 2020 - Written by Tim Boyer

Despite the Pound’s attempts to recover against many major currencies this week, the British Pound to New Zealand Dollar (GBP/NZD) exchange rate has been unable to advance much. The New Zealand Dollar is benefitting from higher market demand for currencies correlated with risk, as well as market anticipation for major New Zealand growth data due tomorrow. Pound investors are also awaiting more Brexit and Bank of England (BoE) news before making big moves on the British currency.

The New Zealand Dollar has been capitalising on Pound weakness lately. Last week saw GBP/NZD plummet, around 5 cents, from 1.9786 to 1.9295 throughout the week.

On top of that, GBP/NZD briefly touched on a low of 1.9111 on Friday. This was the lowest level for GBP/NZD in over two months, since the beginning of July.

At the time of writing on Wednesday, GBP/NZD continues to fluctuate within a relatively tight region near the week’s opening levels. Generally, GBP/NZD has been slipping lower rather than succeeding to advance this week.

GBP Exchange Rates Struggles to Find Footing despite Stronger than Expected UK Inflation

Against many major currencies, the Pound has been attempting to rebound from its worst levels this week.

The British currency has been benefitting from speculation that the UK government’s plan to rewrite the Brexit withdrawal agreement could still be blocked as opposition towards the bill builds.

On top of this, the Pound found a little support from this morning’s UK inflation rate report, which was a little better than expected in some notable prints.

The yearly inflation rate slowed to 0.2%, but avoided the predicted slump to a stagnant 0.0%. The monthly inflation figure was -0.4% rather than the forecast -0.6%.

However, despite this better than expected inflation, analysts noted that there were deflation concerns as Britain continued to struggle with recovery from the coronavirus pandemic.

According to Christopher Demnik, Head of Macro Analysis at Saxo Bank:

‘In the short-term, inflation will likely stay subdued as the pandemic scars remain. Rising unemployment, which will probably increase much further in coming months as the furlough is coming to an end in October, will push households to cut their spending, thus putting increased downward pressure on prices. The lowest point for inflation in COVID-19 times has certainly been reached, but we are not getting out from prolonged low-flation anytime soon.’

NZD Exchange Rates Strengthen despite Expectations for Dire Growth Rate

The New Zealand Dollar continued to hold its ground against the Pound, avoiding losses despite market expectations for a grim New Zealand growth report tomorrow.

Investors continue to buy the New Zealand Dollar ahead of the growth data, amid lingering market demand for currencies correlated to risk and trade.

Hopes for recovery from the coronavirus pandemic, as well as speculation of a more dovish Federal Reserve, have made investors more eager to take risks. This is helping the New Zealand Dollar to hold its highs.

The New Zealand Dollar is also fairly appealing as investors are relatively pleased with the nation’s handling of the pandemic.

The currency has remained fairly resilient despite signs of weakness in recent New Zealand data.

Much of the New Zealand’s current strength could evaporate if tomorrow’s New Zealand growth stats are notably worse than expected.

GBP/NZD Exchange Rate Forecast: Focus on Central Bank Developments

The Pound is continuing its advance attempts this afternoon, but the British currency’s potential for gains is highly limited.

No-deal Brexit fears are weighing heavily on the Pound outlook. Depending on how the UK government’s plan to rewrite the Brexit withdrawal agreement goes, the Pound could see notable shifts in movement.

However, movement is also likely to be limited as investors await major central bank developments over the coming sessions.

This evening will see the Federal Reserve hold its September policy decision. If the bank takes a more dovish tone, investors may be more willing to take risks, and the New Zealand Dollar could firm higher.

Tomorrow’s Bank of England (BoE) decision will be closely watched. A more gloomy tone on Britain’s outlook would only further dampen market demand for the Pound.

New Zealand Dollar investors will also be closely watching tomorrow’s New Zealand growth rate report.

If New Zealand’s Q2 growth rate results are even worse than expected, the Pound to New Zealand Dollar exchange rate will be more likely to sustain a recovery.
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