GBP V NZD: Pound storms HIGHER against New Zealand dollar ahead of RBNZ rate decision

With the UK's latest inflation data lending support to the pound, the GBP/NZD exchange rate romped from a low of NZ$1.757 to a high of NZ$1.776.

As the inflation print of 2.3 per cent beat forecasts for a result of 2.1 per cent and boosted Bank of England (BoE) interest rate hike expectations, the pound was also able to achieve a ten-day high of €1.156 against the euro and a three-week best of $1.249 against the US dollar.

Sterling held these gains even after BoE Governor Mark Carney tried to talk down the impact of the CPI stat by commenting that people should "Never overreact to a single data point".

Although the New Zealand dollar briefly fought back following a pretty positive dairy auction, the pound still came out on top, holding its almost two cent gain.

Dairy is one of New Zealand's primary exports, so the unexpected increase in prices at Fonterra's GlobalDairyTrade (GDT) auction was particularly welcome after two previous declines.

The quarterly GDT report stated: "Q1 2017 ended with a 1.7 per cent increase in the GDT Price Index in the final trading event of the quarter.

"The GDT Price Index has risen 55 per cent over the past 12 months. Over Q1 as a whole the GDT Price Index is lower, the first quarterly drop since Q1 2016."

Although this dairy auction news helped reduce concerns of a protracted slide in the price of the commodity, the New Zealand dollar failed to see much benefit from the announcement ahead of the RBNZ interest rate decision.

At its February gathering the central bank indicated that the New Zealand dollar is currently overvalued and that interest rates could remain on hold for two years or more.

Since then New Zealand has published some concerning growth data for the fourth quarter of 2016.

The nation's economy was shown to have expanded by just 0.4 per cent in the fourth quarter, significantly below some forecasts for GDP growth of 0.8 per cent.

Gary Dunnet, national accounts senior manager with Statistics New Zealand, said of the result: "Growth in service industries was partly offset by weaker activity in primary industries also flowing through into manufacturing.

"At an industry level, growth was a mixed bag, with only half of our 16 industries rising."

While analysts expect to see a rebound in growth in the first quarter of 2017, the RBNZ may highlight the slowdown as a cause for concern and a reason to keep policy accommodative for the foreseeable future.

Cautious commentary would help the pound keep climbing against the New Zealand dollar.

Tomorrow's UK retail sales report could also keep GBP/NZD strong if it shows the expected increase in consumer spending.