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GBP/NZD Exchange Rate Struggles as RBNZ Optimism Boosts Kiwi

February 24, 2021 - Written by Ben Hughes

The Pound continues to rally today, but the British Pound to New Zealand Dollar (GBP/NZD) exchange rate is still struggling to gain too far past the week’s opening levels. This is because the New Zealand Dollar still remains broadly appealing itself, and the latest Reserve Bank of New Zealand (RBNZ) policy decision only further bolstered market appetite for the relatively risky ‘Kiwi’.

Last week’s GBP/NZD movement was highly volatile. After opening last week at the level of 1.9163, GBP/NZD spent most of the week trending with an upside bias and towards the end of the week GBP/NZD touched on a high of 1.9400. This was the best level for GBP/NZD in three months, since November.

After touching this high though, GBP/NZD plunged back and shed almost all of the week’s gains. GBP/NZD closed the week close above the week’s opening levels, at around 1.9190.

Since markets opened this week, movement has been narrower. GBP/NZD is still attempting to advance, but only trends slightly higher at the level of 1.9213 at the time of writing.

Pound Sterling (GBP) Exchange Rates Continue to Rally on UK Recovery Prospects

Speculation that the UK will be one of the first major economies to recover from the coronavirus pandemic continues to keep the Pound one of the most appealing major currencies.

UK coronavirus infection and death rates have been falling amid third national lockdown, and UK Prime Minister Boris Johnson has announced plans to start gradually easing restrictions from next month.

Whole the easing roadmap was not as optimistic as some hoped, it was still optimistic overall and this is helping the Pound to keep trending strongly, especially against weaker rivals.

On top of this, speculation is rising that continued improvement and resilience in UK growth would offset any need for potential negative interest rates from the Bank of England (BoE).

According to Michael Hewson from CMC Markets:

‘The Pound has continued its advance to multiyear highs against the US Dollar, as markets take the not unreasonable view, barring some serious missteps from the government, that the UK economy will probably be one of the first major economies to start to ease restrictions in the coming weeks.’

New Zealand Dollar (NZD) Exchange Rates Bolstered Reserve Bank of New Zealand’s Optimistic Outlook

The New Zealand Dollar has also been fairly consistently appealing lately. New Zealand has been weathering the coronavirus pandemic well, due to swiftly handling the virus with short and strict lockdowns.

As a result, New Zealand has been mostly free of local lockdowns in recent months. This has meant that New Zealand’s economy has been outperforming other major economies as well.

Last night saw the Reserve Bank of New Zealand (RBNZ) hold its February policy decision. As expected, the bank didn’t make any changes to monetary policy or surprise shifts in tone.

Instead, the bank remained relatively optimistic about New Zealand’s economic outlook. The upbeat RBNZ further dampened speculation of more monetary policy easing, and kept the New Zealand Dollar appealing.

According to Economists at MUFG:

‘The kiwi has derived some support from the RBNZ’s more upbeat economic outlook although they have stressed that they will maintain loose policy for longer. The RBNZ now views risks to the economic outlook as ‘balanced’ rather than ‘less skewed to the downside’.’

GBP/NZD Exchange Rate Forecast: Bank of England Speeches Could Cause Movement

The Pound to New Zealand Dollar exchange rate is likely to be driven by coronavirus developments and shifts in market sentiment for the rest of the week, as upcoming economic data is unlikely to be hugely influential.

New Zealand business confidence data tomorrow, and consumer confidence and trade stats on Friday, could boost the New Zealand Dollar’s appeal if they impress investors.

However, with New Zealand’s outlook fairly strong overall, it would take shockingly poor New Zealand data or a sudden rush to safe havens to push the New Zealand Dollar down again.

Of course when it comes to market sentiment, coronavirus developments will remain the focus. If there are any new surges in cases or negative developments with vaccines for example, this could weaken market sentiment and NZD.

As for the Pound, it is likely to remain fairly strong, though some analysts believe it could be due for a correction lower before too long.

Upcoming speeches from Bank of England (BoE) officials, including a testimony from BoE Governor Andrew Bailey later today, also have the potential to drive the Pound to New Zealand Dollar (GBP/NZD) exchange rate.
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