Pound New Zealand Dollar Exchange Rate Forecast: Change in RBNZ Policy Targets Could Offer ‘Kiwi’ Boost

Update: Fresh Pound New Zealand Dollar Exchange Rate Gains Forecast on Rising Consumer Credit

The Pound to New Zealand Dollar (GBP/NZD) exchange rate may struggle to find any particular upside in the coming week, with UK data somewhat thin on the ground once again.

However, the latest UK consumer credit figure could offer support to the Pound if it strengthens in line with forecast.

Higher levels of consumer credit would imply greater confidence within the domestic economy, giving the Bank of England (BoE) further incentive to go ahead with an interest rate hike in May.

Market risk aversion is still likely to limit the losses of the GBP/NZD exchange rate over the coming days, even so.

High Odds of a May BoE Rate Hike Fail to Sustain Pound Exchange Rate Strength

After a week of strong gains, the Pound to New Zealand Dollar (GBP/NZD) exchange rate returned to a downtrend in the wake of the Bank of England’s (BoE) March policy meeting.

Even though the tone of the meeting proved a little more hawkish in nature than forecast, with two policymakers voting in favour of an immediate interest rate hike, this was not enough to keep the Pound (GBP) on its bullish run.

While the announcement initially prompted fresh gains for GBP exchange rates these soon faded, as investors already regard the prospect of a May interest rate hike as being effectively priced into the Pound.

Investors also engaged in a spate of profit-taking against the Pound, with GBP exchange rates having hit multi-month highs on the back of stronger-than-forecast UK wage growth data this week.

Lingering worries over Brexit muted the potential of the GBP/NZD exchange rate, with a number of key issues such as the Irish border yet to be resolved.

New Zealand Dollar Recovers Ground Despite Global Trade War Forecasts

While concerns continued to mount over the likelihood of a trade war erupting between the US and China, this has failed to offer the GBP/NZD exchange rate any support on Friday morning.

This was largely due to renewed softness in the US Dollar (USD), which has suffered thanks to the likely negative impact that tit-for-tat tariffs from China could have on the growth of the US economy.

Although the Reserve Bank of New Zealand (RBNZ) looks set to leave interest rates on hold for the foreseeable future this neutral policy outlook has not kept the New Zealand Dollar (NZD) under any particular pressure.

Even as the policy divergence between the RBNZ and other major central banks, most notably the US Federal Reserve, continues to widen the downside potential of NZD exchange rates still looks somewhat limited.

GBP/NZD Exchange Rate Volatility Forecast as New RBNZ Governor Takes Reins

Additional weakness could be in store for the GBP/NZD exchange rate on Monday as New Zealand finance minister Grant Robertson and incoming RBNZ Governor Adrian Orr sign a new Policy Targets Agreement (PTA).

This fresh PTA is expected to shift the RBNZ’s focus from simply targeting inflation to include an additional target on employment levels.

Such a change in direction may give the central bank less reason to maintain a neutral policy bias in the coming months, to the potential benefit of the New Zealand Dollar.

Focus will also fall on Governor Adrian Orr’s first media briefing, which investors will scrutinise for any hints as to Orr’s likely approach to monetary policy.

Anything that encourages bets of a more proactive RBNZ outlook would weigh heavily on the GBP/NZD exchange rate.

However, if the latest trade data fails to impress the New Zealand Dollar is forecast to return to a generally softer footing.

Developments in the global economy may still offer some degree of support to the GBP/NZD exchange rate in the near term, though, as a trade war would not benefit the New Zealand economy.

Hannah Wilson

Contact Hannah Wilson