Pound Sterling To New Zealand Dollar Rate Fights Back As NZ Rally Over

The New Zealand Dollar (NZD) remains a weak position, allowing the British Pound (GBP) to recover on the foreign exchange markets

The GBP/NZD exchange rate surged on Thursday afternoon, reversing its weekly losses and taking it to around the week’s opening levels.

Investors finally felt a little more optimistic on the Pound following statements made by a Bank of England (BoE) policymaker.

After Wednesday’s report from the Office for National Statistics (ONS) that the Brexit had not yet effected Britain’s economy, Sterling was boosted by a hawkish tone from Kristin Forbes, a member of the BoE’s Monetary Policy Committee (MPC). Forbes, a known hawk, believes further BoE cuts and easing are unnecessary but this was enough to give Sterling a leg up.

Investors appear to have put greater stock in the commentary of the Reserve Bank of New Zealand (RBNZ), with the NZD exchange rates slumping across the board in the wake of the central bank’s dovish hold.

As policymakers left the door open for interest rates to be cut before the end of the year the outlook of the New Zealand Dollar soured, enabling the GBP/NZD exchange rate to make some strong gains

GBP/NZD continued to hold above its worst weekly levels on Wednesday afternoon, but markets were set on waiting for the day’s Federal Reserve news before making any sudden movements on the risky ‘Kiwi’.

Even if the Fed disappoints markets and leads investors seeking out higher yielding assets, NZD may not take advantage until after the Reserve Bank of New Zealand’s (RBNZ) own upcoming policy decision.

UK borrowing figures weakened British Pound exchange rates marginally, with GBP escaping worse depreciation due to market focus on the Federal Reserve.

Weakness in other currencies gave traders few appealing options when considering selling out of Pound Sterling, so the UK’s -£10.1 billion public deficit had a muted impact.

Likely to weigh on GBP/NZD exchange rates once market volatility has abated, August’s data also revealed an increase of 0.7 billion in the public sector’s borrowing requirements and an increase of 4 billion in central government borrowing needs.

Here’s a look at today’s currency FX rates for GBP and NZD;

FX markets see the pound vs pound exchange rate converting at 1.

The pound conversion rate (against australian dollar) is quoted at 1.928 AUD/GBP.

At time of writing the pound to canadian dollar exchange rate is quoted at 1.701.

NB: the forex rates mentioned above, revised as of 20th Apr 2024, are inter-bank prices that will require a margin from your bank. Foreign exchange brokers can save up to 5% on international payments in comparison to the banks.

Domestic data weakened the New Zealand Dollar, with NZD exchange rates remaining weak ahead of two key central bank decisions.

Investors in the New Zealand Dollar largely focussed on two key central bank meetings; the Federal Reserve and the Reserve Bank of New Zealand (RBNZ).

While the former was predicted to hold rates and signal a hike, the latter was expected to freeze and signal an easing bias, suggesting New Zealand Dollar exchange rates were in for rapid depreciation.

Domestic data further undermined NZD, with credit card spending falling -1.4% on the month and seeing a rapid deceleration from 5.6% to 1.9% on the year in August.

Markets may be too caught up in the volatility caused by central banks today to notice the rest of the week’s data, suggesting lacklustre GBP exchange rate movement.

While today’s borrowing figures could return to haunt the markets at a quieter time, the markets look set to be preoccupied by central bank volatility in the coming days.

As such neither the latest borrowing figures, nor tomorrow’s Confederation of British Industry (CBI) data may have a huge impact upon British Pound exchange rates.

The CBI trends total orders figure for September is expected to remain at -5, while the trends selling prices is expected to increase from 8 to 10; a possible first sign that weaker Pound Sterling is beginning to stoke inflationary pressures in the UK.

NZD Forecast to Race Skyward if RBNZ Don’t Signal Further Easing

While markets believe further monetary policy easing is likely from the Reserve Bank of New Zealand, the general consensus is that loosening will not happen during today’s meeting.

This is partly because the RBNZ has a history of adjusting policy in the same month as Monetary Policy Statements, along with updated market and economic forecasts, are released.

Also, according to Infometrics Head of Forecasting Gareth Kiernan, there are other reasons for the RBNZ to be more reticent about rate adjustments;

‘There's been a dairy price recovery, and the housing market remains strong although it's got other tools to deal with that in the next few months, and we had some reasonable economic growth numbers last week, and signs of more growth coming.’

According to Citibank analysts, a November 2016 rate cut is expected by the foreign exchange markets:

"The RBNZ kept the OCR at 2.00%. The statement is dovish by saying “further policy easing will be required” given high exchange rate and low inflation, leaving the door open to a Nov cut."

"A cut in Nov is largely priced in: With roughly a 60% probability of a cut priced in, there may be limited room for further pricing on a cut. NZDUSD dips are likely to be bought."

In terms of the NZD/USD exchange rate, Citibank see a move higher:

"As NZD is still within its uptrend channel and being supported by uptrend line, the pair may range trade between 0.7235 (Sep 13 low) and 0.7486 (Sep 7 top) in the short term."