GBZ NZD Forecast: How will RBNZ Interest Outlook Impact New Zealand Dollar Exchange Rates?

The near-term outlook for the Pound New Zealand Dollar (GBP/NZD) exchange rate improved today, with robust factory data in the UK and the possibility that Brexit negotiations could speed up within 2 weeks driving demand back to the Pound.

But what can we expect in the week ahead?

GBP Exchange Rates Climb on New Brexit Deadline Confidence

The Brexit negotiation process remains a proverbial thorn in the Pound’s side, and on Friday EU Chief Negotiator Michael Barnier revealed at the latest press conference that unless sufficient progress is made on the divorce bill within 2 weeks, December trade deal discussions will not take place.

At face value this could be deemed bad news for the Pound, but with a 2 week deadline for negotiations finally on the table, it seems markets are anticipating that the required progress will, at last, be made.

With Brexit negotiations having resumed, markets next week will be carefully watching how this transpires. On one hand, the UK is trying to avoid being strong-armed into accepting an extraordinarily large settlement, on the other, UK Brexit Secretary David Davis, amongst others, has reiterated that the UK will make good on Britain’s planned contributions to the EU budget.

If a sum is finally agreed upon then December trade talks can begin – a prospect that could lend significant support to the Pound.

RBNZ Strikes Optimistic Tone, What will it Mean for GBP NZD?

Whilst the Reserve Bank of New Zealand (RBNZ) surprised no one by leaving interest rates on hold at the latest policy meeting, their accompanying comments dismissing potential changes to monetary policy as a result of the latest leadership change raised some eyebrows.

Markets had previously been worried that the RBNZ would have to lower interest rates to accommodate a dual mandate; fostering inflation and the new addition of curbing unemployment levels.

This possibility was quickly dismissed by RBNZ Governor Grant Spencer, however, who asserted that a dual mandate would not affect policy and that the bank’s strategy will likely remain accommodative for a considerable period of time.

Nonetheless, New Zealand’s Finance Minister Grant Robertson has recently asserted that he expects the bank’s focus to be discussed, especially when a new governor comes about.

Indeed, as much as the RBNZ insists its policy will remain the same, markets remain cautious that new policy measures from the Labour led coalition could spell uncertainty, a prospect that could hurt the ‘Kiwi’ Dollar.

Markets will be watching for proposals from the new leadership in New Zealand, with anything deemed likely to hurt the economy liable to favour the GBP NZD exchange rate.

UK Factory Data Proves Positive – GBP NZD Exchange Rate Outlook Brightens

The Office for National Statistics (ONS) published some positive UK data prints today, with September’s industrial production figure rising year-on-year by 2.5%.

This reading beat both the previous period’s 1.8% rise and the forecast of 2.1%, ultimately presenting the fastest pace of growth in all of this year.

Similarly, UK manufacturing production proved positive by leaping 2.7% year-on-year and 0.7% on the month, beating both forecasts of 2.5% and 0.3%.

This news ultimately proved indicative of a strengthening industrial sector that continues to shrug off at least some of the pressures of the recent consumer slowdown, though exactly how long this will continue is questionable, especially with the recent jump in crude oil prices.

Nonetheless, Sterling investors were pleased to hear this news, as a strengthening industrial sector and the reliance of Europe on British cars (the primary driver in the significant 2.2% leap in UK exports) could leave the UK in a strong Brexit negotiating position in the weeks ahead.

UK data next week includes the inflation print (currently forecast to continue climbing in October beyond 3.0%), the retail price index, employment figures and finally; retail sales, with markets expecting unemployment in the UK to remain at record lows.

With the Bank of England (BoE) and various economists already predicting inflation in the UK to rise to around 3.1% in October, such an increase will likely not be much of a surprise.

If inflation proves stable or even weaker than anticipated, however, then the GBP NZD exchange rate could come under significant pressure, as markets become worried that the BoE would use it as reason to slide further into a dovish policy outlook.

Hannah Wilson

Contact Hannah Wilson