Pound New Zealand Dollar (GBP/NZD) Exchange Rate Rallies as RBNZ Signal Negative Rates as an ‘Option in Future’

Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Jumps as RBNZ Double QE

The Pound Sterling New Zealand Dollar (GBP/NZD) exchange rate rallied by around 1%, leaving the pairing trading at around NZ$2.0389.

Today saw the Reserve Bank of New Zealand (RBNZ) leave interest rates at 0.25% as expected. Although said it was prepared to use additional tools ‘if and when needed’.

The bank also announced it would double the amount of bonds it will buy as part of its quantitative easing programme.

However, the ‘Kiwi’ remained under pressure today as the RBNZ signalled a possible shift to negative interest rates as the coronavirus pandemic continues to hurt growth.

New Zealand’s central bank reaffirmed its guidance that rates will remain at 0.25% until early 2021, and negative rates ‘will become an option in future’.

This signal the bank could take rates into negative territory came as the RBNZ predicted a huge -21.8% contraction in the second quarter.

Speaking to reporters, the central bank’s Governor, Adrian Orr said:

‘The real challenge for us is to make sure that all options are available.

‘We will be assessing the use of negative interest rates along with the other tools […] One hopes we don’t have to use all options.’

Commenting on this, Westpac economist, Dominick Stephens stated:

‘Between the lines we suspect that the RBNZ is uncomfortable with the outlook. The statement repeatedly noted that the risks are to the downside.

‘Forward guidance is regularly updated in response to changing circumstances, so we feel comfortable maintaining our forecast that the OCR will drop to -0.5% in November.’

British Economy Suffers Sharpest Quarterly GDP Fall Since 2008

The Pound made significant gains against the ‘Kiwi’ on Wednesday morning despite disappointing UK GDP data.

This morning’s GDP data revealed Britain’s economy shrank by a record -5.8% in March as the coronavirus crisis hit.

In the first quarter, GDP contracted by -2% compared to the final quarter of 2019. This was the sharpest quarter-on-quarter slump since the end of 2008.

Added to this, analysts have said they expect a steeper fall in April as Britain spent the entire month under lockdown.

Commenting on this, Resolution Foundation’s research director, James Smith noted:

‘The lockdown was only in place for seven working days in the first three months of the year. But it was still enough to bring about the biggest quarterly economic contraction since the peak of the financial crisis and the weakest single-month change on record.

‘With the country in full or partial lockdown well into the second half of the year, the grim economic milestones hit in the latest data will be shattered next time around.

‘Today’s figures serve as a reminder as to why a bold economic policy response has been needed. That approach will need to continue as Britain begins the long road out of this economic crisis.’

Pound New Zealand Dollar Outlook: NZD to Slump as Visitor Arrivals Tumble

Looking ahead to this evening, the New Zealand Dollar (NZD) could extend its losses against Pound (GBP) following the release of visitor arrivals data.

If New Zealand’s visitor arrivals data slumps further than expected in March due to the coronavirus crisis, the ‘Kiwi’ will slide.

Thursday could see the ‘Kiwi’ fall further following the release of April’s Business NZ PMI.

If New Zealand’s PMI slumps further into contraction than expected, the Pound New Zealand Dollar (GBP/NZD) exchange rate will edge higher.

Millie Empson

Contact Millie Empson