GBP/NZD Exchange Rate Dive-bombs as RBNZ Shocks Markets by Leaving Rates on Hold

GBP/NZD Exchange Rate Collapses in Wake of RBNZ Rate Decision

The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate is licking its wounds this morning, having fallen over two cents overnight in response to the Reserve Bank of New Zealand’s (RBNZ) latest rate decision.

The GBP/NZD exchange rate is now trading at over NZ$2.0061, down over 1% from yesterday’s best levels.

New Zealand Dollar (NZD) Skyrockets on Surprisingly Hawkish RBNZ

The New Zealand Dollar (NZD) surged in overnight trade after the Reserve Bank of New Zealand surprised markets by leaving its interest rates on hold this month.

Ahead of the meeting the general consensus was that the RBNZ would cut rates again this month, resulting in some aggressive NZD buying as traders reversed their positions.

Imre Speizer, senior markets strategist at Westpac sums up the reaction:

‘This goes very much against the grain of what almost all the analysts expected on the day. It was expected to be a rate cut so the interest rate traders would have gone into it betting on a fall and NZD traders would have been short on ‘Kiwi’.’

In keeping interest rates on hold this month the RBNZ, stated that recent economic developments do not warrant a change in the bank’s already accommodative monetary policy.

The RBNZ also pointed to New Zealand’s robust export commodity prices and the recent weakness in NZD exchange rates as being supportive of the domestic economy and offsetting risks posed by slowing global growth.

While the RBNZ may have stayed pat this month, economists forecast this will only be temporary and are now speculating on a cut taking place in either February or May next year.

Pound (GBP) Undermined as UK Inflation Falls to Three-Year Low

The Pound (GBP) is struggling to find support this morning after the UK’s latest consumer price index showed inflation slumped to a three-year low in October.

According to data published by the Office for National Statistics (ONS), headline inflation slowed from 1.7% to 1.5% last month, coming in below the 1.6% forecast by economists.

The slide in inflation will bolster expectations that the Bank of England (BoE) could cut interest rates in early 2020 after its most recent policy meeting exposed a split in its Monetary Policy Committee (MPC) over the need for immediate easing.

GBP/NZD Exchange Rate Forecast: Rebound in UK Retail Sales to Boost Sterling?

Still to come this week, we have the publication of the UK’s latest retail sales figures on Thursday.

Economists forecast a modest expansion in sales growth in October, potentially allowing the Pound to New Zealand Dollar (GBP/NZD) exchange rate to re-coup some of its recent losses.

Of course the release could easily be overshadowed by ongoing political uncertainty in the UK, with Sterling extremely vulnerable to political headlines in the run up to the general election on 12th December.

Meanwhile, NZD exchange rates may come under pressure in the second half of the week if renewed US-China trade uncertainty prompts a risk-off mood in markets.

Matthew Andrews

Contact Matthew Andrews