Pound to New Zealand Dollar Exchange Rate Sinks as RBNZ Prepares for Further Stimulus Measures

The Pound to New Zealand Dollar (GBP/NZD) exchange rate is down by -0.2% today after the Reserve Bank of New Zealand’s Governor, Adrian Orr, announced further efforts to bolster the NZ economy through additional monetary policy tools.

Mr Orr also said that lowering interest rates had been effective, which has further buoyed confidence in the ‘Kiwi’, as the national bank maintains its wait-and-see approach.

Last Week: GBP/NZD Sinks as No-Deal Brexit Fears Drag Down Sterling

The GBP/NZD exchange rate tumbled from highs of NZ$2.00 to lows of NZ$1.97 over the course of last week as hopes of a breakthrough in US-China trade relations buoyed the risk-averse ‘Kiwi’.

A Chinese Government adviser commented on the situation between the world’s two largest economies: ‘Both sides agreed to create conditions to further implement the deal. It indicates that the US still wants to keep the deal. So does China.’

With China being New Zealand’s largest trading partner, this provided a boost in confidence for the nation’s economic recovery in the months ahead.

However, the beginning of last week saw the ‘Kiwi’ suffer following the release of New Zealand’s retail sales for the second quarter, which plummeted from -1.2% to -14.6. As a result, NZD traders remained cautious as the nation’s economic data continues to disappoint.

Nevertheless, New Zealand’s Prime Minister, Jacinda Ardern, remained steadfast in her efforts to bring the Covid-19 outbreak under control.

The Pound (GBP) began to slip last week as doubts grew over the possibility of the UK securing a post-Brexit trade deal with the European Union. This follows heavy criticism of the UK Government by Michel Barnier, the EU’s Chief Negotiator.

Both Mr Barnier, and his British counterpart, David Frost, concluded that a no-deal Brexit is now becoming more likely. Consequently, this dragged down Sterling towards the end of last week.

Three Things to Watch out for This Week

  1. Global Economic/Coronavirus News

The risk-averse New Zealand Dollar will remain sensitive to risk sentiment this week. So, any signs of US-China trade tensions improving, or indications of Covid-19 cases dropping worldwide, would boost the high-yielding New Zealand currency.

  1. Bank of England’s (BoE) Andrew Bailey Speech

Thursday will see the BoE’s Governor, Andrew Bailey, deliver a speech. Any dovishness about the British economy, however, would further drag down Sterling.

  1. Brexit Developments

Brexit developments will remain in focus this week. If Brexit negotiations continue to show lack of consensus, then we would see the Pound continue to suffer.

GBP/NZD Outlook

The GBP/NZD exchange rate will likely sink this week owing to a lack of clear progress in UK-EU Brexit talks. If there is a breakthrough in informal talks, we could see Pound begin to claw back some of its losses.

David Moore

Contact David Moore