Covid-19 Vaccine Optimism and RBNZ Signals Limit GBP/NZD Upside

Growing hopes over the viability of developing Covid-19 vaccines and signs of a less dovish Reserve Bank of New Zealand (RBNZ) outlook left the GBP/NZD exchange rate under pressure.

Last Week: Less Dovish RBNZ Message Buoys New Zealand Dollar

As the RBNZ delivered a less dovish message than anticipated at its November policy meeting the mood towards the New Zealand Dollar improved.

Markets were encouraged as the RBNZ indicated that the economy have proven more resilient than previously thought, offering NZD exchange rates a boost.

Fresh signs of positive progress towards a viable Covid-19 vaccine also helped to fuel market risk appetite, putting further downside pressure on the GBP/NZD exchange rate.

A persistent lack of progress towards an agreement in UK-EU trade talks kept the Pound on a weaker footing, meanwhile.

Three Things to Watch out for This Week

1. UK Consumer Price Index

Support for the Pound could pick back up in the wake of Wednesday’s UK consumer price index report, with forecasts suggesting an uptick in the headline inflation rate.

As long as inflationary pressure shows signs of picking back up at the start of the fourth quarter this could give the Bank of England (BoE) less reason to consider negative interest rates, to the benefit of GBP exchange rates.

2. Draft Brexit Deal Deadline

However, the Pound may struggle to hold onto any particular degree of strength in the days ahead as markets brace for the passing of the latest deadline for a draft Brexit deal.

If the UK and EU fail to resolve the remaining key issues that stand in the way of an agreement the mood towards the Pound could weaken sharply as the odds of a no-deal scenario jump.

3. New Zealand Credit Card Spending

While market risk appetite could help to keep the New Zealand Dollar on a stronger footing this week Friday’s credit card spending figure could put a dampener on the ‘Kiwi’.

If card spending shows another sharp decline in October this may fuel anxiety over the underlying strength of the New Zealand economy, offering the GBP/NZD exchange rate a potential leg up.

GBP/NZD Outlook

Even if the UK inflation rate picks up as forecast this may not be enough to keep the GBP/NZD exchange rate from shedding fresh ground in the face of ongoing Brexit-based uncertainty.

Louisa Heath

Contact Louisa Heath