August 25, 2022 - Written by John Cameron
STORY LINK Pound New Zealand Dollar (GBP/NZD) Exchange Rate Drops to 9-Day Low
GBP/NZD Exchange Rate Tumbles on Risk-On Mood, Sterling Weakness
The Pound New Zealand Dollar (GBP/NZD) exchange rate is falling this morning as a stronger risk appetite buoys risk sensitive currencies, while energy-related headwinds in the UK suppress appeal for the Pound (GBP).
At the time of writing, GBP/NZD is trading at NZ$1.8970, down 0.6% from today’s opening levels.
Pound (GBP) Sinks as Regulators Warn Further Government Support is Needed
The Pound is weakening against several peers today, subdued by stark warnings from multiple regulatory authorities. Bodies such as the British Chambers of Commerce (BCC) state that the government must act now to avoid dangerous levels of poverty and the collapse of numerous British businesses.
Energy prices are at the centre of the issue, as the UK’s energy price cap has risen far more rapidly than was initially forecast. Escalating costs of gas and electricity are squeezing household and business budgets, threatening to push families into poverty if support measures don’t increase with consumer prices.
Alison Garnham, Chief Executive of The Child Poverty Action Group (CPAG), comments:
‘With a £1,000 shortfall just for energy bills, many struggling families will fall through the ice this winter unless the government makes more help available fast.
Four million children are already in poverty with many others now perilously close to it. Leaving their families to sink cannot be an option.’
To keep businesses up and running, the BCC proposes a five-point plan. The group says that Ofgem ought to be given more power to strengthen regulation; VAT ought to be cut to 5%; Covid-style support should be provided in the form of emergency grants for SMEs, National insurance contributions ought to be temporarily reversed and wage pressures should be reviewed by government via the Shortage Occupation List (SOL).
Meanwhile, consumer watchdog ‘Which?’ says the government must raise its energy bills discount by at least 150%. The group acknowledges it is not a long term solution, but that without some sort of stopgap ministers risk pushing millions of households into ‘financial distress.’
Subsequently, remarks the watchdog’s Director of Policy and Advocacy, ‘the government and regulator must urgently undertake a wide-ranging review of retail energy pricing – including the price cap – to build a fair and affordable system for consumers.’
‘The government must also develop a programme to urgently improve the insulation of homes – as this will help to reduce people’s energy costs for years to come.’
New Zealand Dollar (NZD) Supported by News from China
The New Zealand Dollar (NZD) is trading broadly higher this morning, supported by risk-on sentiment and positive news from China.
While the ‘Kiwi’ is not so closely linked to the Chinese Yuan (CNY) as the Australian Dollar (AUD), Chinese tailwinds often lend NZD support on account of the countries’ trading relationship.
China’s Cabinet introduced a $146bn (¥1tln) stimulus package on Wednesday, to counter the damage inflicted upon the country’s economy by successive Covid-19 lockdowns and a slump in the property sector. While multiple economists say the package will not go far enough, it is acknowledged as a step in the right direction.
Li Zhong, China’s Vice Minister of Human Resources and Social Security, remarked that the country will focus on creating employment opportunities, promoting fiscal, monetary and industrial policies to support its labour market.
The package is organised into 19 measures, including a further ¥300bn that state policy banks can invest into infrastructure on top of the ¥300bn already announced at the end of June.
Elsewhere, the People’s Bank of China (PBoC) delivered a 10bps interest rate cut last week to support growth, following measures delivered in May which saw Beijing commit approximately ¥1.9tln to the economic recovery.
Also supporting the New Zealand Dollar may be an uptick in the value of dairy products – a key NZ export. Capping further gains for the ‘Kiwi’, however, could be Q2 retail data.
Sales fell in the second quarter of 2022 by 2.3%, rather than growing by 0.4% as forecast – the second monthly decline in a row. According to Statistics New Zealand, ten of the fifteen retail industries had lower sales volumes in the June quarter, with motor vehicle and parts retailing clocking the largest fall at -5.8%.
GBP/NZD Exchange Rate Forecast: External Factors to Drive Movement?
Looking ahead, a lack of significant data through tomorrow’s session leaves GBP/NZD to trade on external factors. If risk sentiment remains upbeat, the exchange rate could tumble further, while additional warnings from UK authorities are likely to keep Sterling gains at a minimum.
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