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GBP to NZD Exchange Rate Eases Back from Best Levels as ‘Kiwi’ Selloff Runs Out of Steam

September 25, 2020 - Written by Tim Boyer

Investors sold the British Pound to New Zealand Dollar (GBP/NZD) exchange rate back from its weekly highs yesterday. As markets continued to digest Britain’s latest fiscal policy support, the New Zealand Dollar has been able to rebound slightly from its poor performance this week. Despite lingering bets that the Reserve Bank of New Zealand (RBNZ) could become more dovish, the New Zealand Dollar’s bearishness has run out for now.

GBP/NZD has seen a huge jump in demand this week overall. While GBP/NZD opened this week near a low of 1.9064, the worst level for the pair in a month and a half, it has seen significant gains.

GBP/NZD touched on a high of 1.9575 yesterday – over 5 cents above those worst levels and the best level for the pair since its plummet at the beginning of the month.

However, since hitting that high GBP/NZD has recoiled somewhat. While GBP/NZD is still on track to see impressive gains this week, the pair is currently trending lower in the region of 1.9435.

GBP Exchange Rates Reassess After Yesterday’s UK Job Support Scheme News

This week has been a highly volatile one for Pound exchange rates. Investors have been buying the Pound on hopes for a UK-EU Brexit deal and more fiscal support for the coronavirus second wave, but Sterling support has been limited by an overall global surge in coronavirus fears.

Britain’s own coronavirus situation worsened over the past week. With UK coronavirus cases skyrocketing, the government has ramped up restrictions to attempt to contain the pandemic.

UK pubs will have to close earlier, and workers must work from home once again if they are able to.

With restrictions rising again, the UK government was quickly under pressure to offer more fiscal policy stimulus to support potential job losses.

Yesterday saw UK Chancellor Rishi Sunak announced a job support scheme to succeed Britain’s furlough scheme. This more limited support scheme would make it easier for employees to work less hours without risk of job losses.

The measures were met with mixed response from the Pound. Businesses were overall optimistic about the news, but some analysts said it did not go far enough.

The Pound remains resilient before markets close this week though, as analysts predict that there is likely more support on the way. According to Analysts at Jefferies:

‘We know this is not the end of the story,

We retain our view that the UK is relatively well placed to announce additional fiscal measures.’

NZD Exchange Rates Rebound after Sessions of Losses

The New Zealand Dollar spent most of the past week tumbling, as investors reacted to bets that the Reserve Bank of New Zealand (RBNZ) would likely ramp up monetary policy easing.

The RBNZ has been among the central banks that has not taken the possibility of negative interest rates off the table. Negative interest rates are a fairly controversial monetary policy option, and if the RBNZ utilised them the New Zealand Dollar outlook would take a big hit.

On top of RBNZ speculation, the New Zealand Dollar has been hit by this week’s risk-aversion. Investors have been avoiding risks and heading for safe havens as coronavirus fears worsen.

However, the New Zealand Dollar’s selloff has paused for now. After days of big losses in risk-correlated currencies, they are rebounding slightly from their worst levels since last night.

According to Analysts at ANZ Bank, the New Zealand Dollar is consolidating today:

‘With no local data today, consolidation is likely to be the name of the game.

Kiwi does face challenges on the monetary policy front and as bond yields go lower we are likely to see more investor allocation out of the local market.’

GBP/NZD Exchange Rate Forecast: Coronavirus and Risk-Sentiment Remain the Focus

For most of the past week, the Pound to New Zealand Dollar exchange rate has been influenced considerably by global developments in the coronavirus pandemic. This is likely to remain a focus.

If the UK government shows signs that Britain’s lockdowns could be extended, the British currency could see fresh losses.

On the other hand, more fiscal stimulus from the UK Treasury could have the opposite effect and bolster the Pound’s support.

The New Zealand Dollar’s potential for further losses may be limited, but if markets remain hesitant to take risks then its potential for recovery will be limited as well.

As for data, next Wednesday will see the publication of key UK growth rate results from Q2. New Zealand building permits and business confidence stats are also due on Friday.

UK manufacturing PMI data from Markit could also influence the Pound to New Zealand Dollar exchange rate next week.
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