Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Extends Gains, Will RBNZ Cut Rates?

Pound to New Zealand Dollar Exchange Rate Climbs amid RBNZ Interest Rate Cut Bets

Expectations that the Reserve Bank of New Zealand (RBNZ) will continue to take a dovish stance on New Zealand monetary policy are helping the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate to maintain an upside bias today.

Weakness in the New Zealand Dollar (NZD) has helped GBP/NZD to advance even amid recent Pound (GBP) weakness. Last week, GBP/NZD was able to advance around half a cent within the interbank region of 2.01.

This week so far, GBP/NZD has continued its gradual advance and the pair currently trends in the interbank region of 2.02. Overnight, GBP/NZD even briefly touched on a three-week-high of 2.03.

While yesterday’s Pound surge was due to UK election developments, today’s strength in the Pound to New Zealand Dollar exchange rate is more due to RBNZ easing speculation weighing on the New Zealand Dollar.

Pound (GBP) Exchange Rate Rally Slows as Markets Digest Election News and Job Stats

Yesterday started out the week with a surprise for the Pound (GBP), as the Brexit Party announced it would not stand candidates in seats already held by the ruling Conservative Party.

The Brexit Party is a populist party formed earlier this year by Nigel Farage. Analysts speculated that the party’s Brexit platform could bite into the Conservative Party’s chances of achieving a majority in next month’s general election.

This news was perceived as boosting the chances of a Conservative majority, which could help the Boris Johnson government to push through its Brexit plans and avoid a no-deal Brexit. This led to a brief surge in demand for the Pound.

However, some analysts questioned the impact this news would ultimately have, as the Brexit Party’s polling numbers had already been falling.

This left the Pound sliding back from its highs overnight, and today’s UK job market stats put further pressure on the British currency. The job stats showed an unexpected slip in wages, as well as the biggest drop in job vacancies since 2009.

New Zealand Dollar (NZD) Exchange Rates Remain Pressured by Expectations for Dovish RBNZ

The Pound (GBP) slipped against many major currencies today, but saw modest gains versus the New Zealand Dollar (NZD) due to the ‘Kiwi’s broad weakness.

The New Zealand Dollar outlook is murky and volatile, amid expectations that the Reserve Bank of New Zealand (RBNZ) will continue to become more dovish on New Zealand’s economic outlook.

Overnight, markets were given yet more reason to believe the RBNZ would become more dovish going forward, as New Zealand’s Q4 business inflation expectations report slowed from 1.86% to just 1.8%.

Following the data, expectations for an RBNZ interest rate cut tomorrow firmed. Bets of further easing in the coming year also rose.

According to Jarrod Kerr, Chief Economist at Kiwibank:

‘It’s been a frustration for the bank for quite some time, and central banks around the world have really struggled to get their monetary policy to gain traction and generate growth and inflation,

Here we are in New Zealand, with cooling growth and cooling inflation and expectations for both have come off and continue to fall.’

Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Investors Await Reserve Bank of New Zealand

The New Zealand Dollar’s (NZD) broad weakness ahead of the tomorrow’s Reserve Bank of New Zealand (RBNZ) interest rate decision is setting the tone for a meeting predicted to be on the dovish side.

The RBNZ is expected to cut New Zealand’s interest rate from 1.0% to 0.75%, but the tone the bank takes regarding New Zealand’s economic and monetary policy outlooks will be even more influential.

If the RBNZ takes a more dovish stance on New Zealand’s outlook, the New Zealand Dollar’s recent weakness could deepen, leading to further GBP/NZD gains. A more optimistic than expected tone would drag GBP/NZD lower instead.

As NZD is a trade-correlated currency, it could also be influenced by potential US-China trade developments in the coming days, such as an upcoming trade speech from US President Donald Trump this evening.

Tomorrow’s RBNZ decision and reaction is likely to overshadow the day’s UK data for Pound to New Zealand Dollar (GBP/NZD) exchange rate investors, but surprising UK inflation stats could still be influential.

Josh Jeffery

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