Risk appetite has remained decidedly volatile in recent days as investors continue speculating over the outcome of the Federal Reserve’s September policy meeting. Given the rather mixed nature of US data there has been an increasing sense that the Fed will leave interest rates unchanged, at least until December. The New Zealand Dollar has been able to derive some support from this, with the appeal of the higher-yielding currency boosted by the bullish mood of markets.
Confidence in the Pound, on the other hand, has been rather more muted in the wake of the Bank of England’s (BoE) latest rate decision. While it wasn’t a particular surprise that the Monetary Policy Committee (MPC) opted not to make any further move on monetary policy at this stage Sterling’s ensuing relief rally proved short-lived. Instead investors were discouraged by the more dovish tone of the accompanying meeting minutes, which indicated that policymakers remain prepared to cut interest rates to a fresh record low if the state of the economy is deemed to warrant it.
NZD Uptrend Supported by New Zealand Consumer Confidence Data
Further signs of New Zealand economic strength came on Friday with the latest ANZ Consumer Confidence Index climbing. As the index rose from 117.7 to 121.0 the outlook of domestic consumers appeared more optimistic, encouraging hope that economic conditions will continue strengthening. With risk appetite heightened, the GBP NZD exchange rate slumped, closing the week in the region of 1.7903.
That bullish outlook was boosted further on Monday morning by similar improvements in the third quarter Westpac Consumer Confidence Index and August Services PMI. Together these pointed towards robustness within New Zealand, particularly as the service sector remained firmly in expansion territory at 57.9. Thus, even though markets became increasingly jittery ahead of Wednesday’s Fed meeting, the ‘Kiwi’ remained biased to the upside.
The Pound staged a modest rally at the start of the week, strengthening on the back of resilient Rightmove House Price data. While the domestic housing market has continued to hold up in the face of persistent Brexit-based uncertainty, though, this was not enough to keep the GBP NZD exchange rate from plunging to a fresh ten-year low of 1.7699.
RBNZ Rate Hold Forecast to Push GBP NZD Exchange Rate Lower
Although the New Zealand Dollar is likely to come under some pressure ahead of the Reserve Bank of New Zealand’s (RBNZ) latest interest rate decision, investors are not anticipating any change in policy. Given the consistent bullishness of recent data it seems likely that policymakers will not want to ease further at this stage, despite the continued strength of the ‘Kiwi’ and its detrimental impact on the domestic economy.
However, as rates are still forecast to be cut once before the end of the year, the GBP NZD exchange rate could trend higher on the back of any dovish commentary. Should policymakers offer further indication that action is imminent then the appeal of the New Zealand Dollar is likely to be reduced. Nevertheless, if the Fed also remains on hold then a surge in risk appetite could see the antipodean currency continue dominating its rivals.
Investors will be paying close attention to August’s UK public sector borrowing figures, meanwhile, with expectations for a renewed monthly deficit after July’s surprise surplus. If signs continue to point towards slowness within the domestic economy then the Pound is likely to fall further out of favour with markets. Ongoing developments in the Brexit saga and worries over the prospect of another BoE rate cut are predicted to hamper the strength of Sterling, something that is likely to keep the GBP NZD exchange rate under pressure for the foreseeable future.