GBP/NZD Clings to Gains as RBNZ Warns of the Possibility of Negative Interest rates

GBP/NZD Exchange Rate Steady on Dovish RBNZ Chatter

The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate is trading in a narrow range this morning as the pairing consolidates yesterday’s gains on the back of additional dovish chatter from the Reserve Bank of New Zealand (RBNZ)

At the time of writing the GBP/NZD exchange rate is virtually unchanged this morning at NZ$1.8827, leaving the pairing roughly a cent down from yesterday’s best levels.

New Zealand Dollar (NZD) Muted Following Orr’s Negative Rate Warning

The New Zealand Dollar (NZD) is currently licking its wounds this morning after plummeting as much as 2% on Wednesday in the wake of the RBNZ’s latest rate decision.

The RBNZ surprised everyone yesterday by announcing a rate cut of 50 basis point, a far more aggressive cut than had been priced in by markets.

While the ‘Kiwi’ began to claw back some of its losses yesterday afternoon on the back of a modest improvement in market risk appetite, this recovery was cut short by RBNZ Governor, Adrian Orr’s testimony in front of parliament.

This saw Orr reiterate his dovish policy outlook, including his warning that ‘negative rates are a possibility’.

Brexit Uncertainty Keeps a Lid on the Pound (GBP)

At the same time, the Pound (GBP) is struggling to find momentum this morning as heightened Brexit uncertainty continues to limit any upside in the UK currency.

Currently driving this uncertainty is the question over whether the UK government will be able to push through a no-deal Brexit or whether parliament has the power to stop it.

While Boris Johnson’s government is ramping up preparations for a no-deal Brexit as talks with the EU remain deadlocked, rebel conservative MPs are reportedly plotting with the opposition to call a possible no-confidence vote.

However, it is currently unclear whether this will work in preventing the UK from crashing out of the EU, the prospect of which continues to cast a shadow over Sterling.

Dominic Cummings, special adviser to the PM claims that Johnson would be under no obligation to step down in the event of a no-confidence vote and could delay a general election until after the Brexit deadline.

GBP/NZD Exchange Rate Forecast: Sterling Sentiment to Sour on Gloomy GDP Figures?

Still to come this week is the publication of the UK’s latest GDP figures, which will likely see the Pound New Zealand Dollar (GBP/NZD) exchange rate relinquish some of its recent gains.

Following a run of gloomy economic data in recent months, economists forecast that growth in the UK will have stagnated or even contracted in the second quarter, likely limiting the appeal of Sterling.

Potentially adding further pressure will be the accompanying business investment figures as they are expected to reveal that heightened Brexit uncertainty and deteriorating economic conditions resulted in commercial investment in the UK slumping again in the second quarter.

In the meantime we may see the publication of China’s latest inflation figures lend some support to the ‘Kiwi’ overnight if they indicate economic activity in New Zealand’s main trading partner showed signs of improvement again in July.

Matthew Andrews

Contact Matthew Andrews