October 6, 2021 - Written by John Cameron
STORY LINK Pound New Zealand Dollar (GBP/NZD) Exchange Rate Soars as RBNZ Raises Interest Rate
GBP/NZD Exchange Rate Firms as NZ Rate Decision Sparks Unease
The Pound (GBP) has risen against the New Zealand Dollar (NZD) this morning as investors adopt a bearish mood in the wake of New Zealand’s interest rate decision. The decision of the Reserve Bank of New Zealand (RBNZ) to raise interest rates highlights the inflationary pressures the country is facing from labour and goods shortages.
At the time of writing, GBP/NZD is trading at N$1.9686, up 0.5% from today’s opening levels.
New Zealand Dollar (NZD) Falls on Inflation Concerns, Covid Uncertainty
The New Zealand Dollar is falling against its peers today as this morning’s interest rate decision from the RBNZ has sparked unease amongst NZD investors.
While the move was expected, the central bank’s increasing of its cash rate by a quarter of a percentage point to 0.5% draws attention to alarming inflation levels and a red-hot housing market.
New Zealand enjoyed a rapid economic recovery following last year’s recession, as strict Covid control measures allowed the island to reopen its economy ahead of other countries.
With borders still shut however, labour and goods shortages are pushing up inflation as well as contributing to a surging property market. The RBNZ committee remarked in the minutes of its meeting this morning that ‘demand shortfalls are less of an issue than the economy hitting capacity constraints.’
Also denting ‘Kiwi’ sentiment, the New Zealand government has backtracked on its Covid elimination strategy, allowing Aucklanders to gather in small groups despite experts’ advice to tighten restrictions and protect vulnerable communities.
Ordinary people will get more freedom but, with limited exceptions for retail and hospitality, they can’t go back to work, meaning the economy will continue to struggle.
In addition, experts predict that more people will get sick and die from coronavirus, as New Zealand’s easing of restrictions is not accompanied by increased testing, reinforced borders or a stronger vaccination programme.
Pound (GBP) Trends Down on Fuel Crisis Developments
The Pound continues to sink against the majority of its peers this morning, in contrast with its uptick against NZD, as the UK’s fuel crisis weighs upon trading sentiment.
Motoring group the RAC have warned that petrol costs are closing in on an all-time high, nearing the record set in April 2012 of 142.48 pence per litre. The RAC’s fuel spokesperson, Simon Williams, said that oil demand was outpacing supply as economies pick up pace.
‘[The trend] looks likely to spell further misery for drivers at the pumps as we head towards Christmas… As forecourts’ fuel stocks return to normal drivers will inevitably switch from worrying about whether they can get the petrol or diesel they need, to just how much a fill-up is costing them.’
Adding to Pound downside, two in three UK firms are expecting to raise prices of consumer goods in the run up to Christmas. Amongst those forecasting prices hikes are fast-food chain Greggs and luxury chocolatier Hotel Chocolat.
The British Chambers of Commerce said inflation expectations had risen to their highest since its records began at the end of the 1980s, with 62% of industrial firms planning price hikes over the next three months.
Mounting ingredient and component costs are a major concern for retailers, alongside a shortage of drivers and staff, and increasing labour costs.
GBP/NZD Exchange Rate Forecast: External Factors to Drive Movement?
Looking ahead, a lack of significant data for either currency means the Pound New Zealand Dollar exchange rate is likely to be driven predominantly by external factors.
Developments regarding the UK fuel crisis and retail price hike could exert further downside on GBP sentiment, while rising Covid cases in New Zealand would likely suppress NZD trading.
The UK’s construction PMI for the month of September printed below expectations this morning, potentially capping Pound gains.
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TAGS: Pound New Zealand Dollar Forecasts