Pound New Zealand Dollar Exchange Rate Down as ‘Kiwi’ Capitalises on Dovish Fed
While the Pound (GBP) continues to trend strongly ahead of the Bank of England’s (BoE) policy decision today, the Pound New Zealand Dollar (GBP/NZD) exchange rate has fallen.
GBP/NZD has been trending with a downside bias this week so far. The pair opened the week at the interbank level of 1.93 and tumbled as soon as markets opened for the week.
Investors were hesitant to keep GBP/NZD nearer last week’s 3-month-highs of 1.94. At the time of writing, GBP/NZD is attempting to hold above the interbank level of 1.93 after slipping to 1.92 multiple times.
If the BoE ramps up its hawkishness, the pair could trend nearer its best levels again. The New Zealand Dollar (NZD) remains highly appealing though, so the Pound to New Zealand Dollar exchange rate may struggle to rally much higher.
Pound (GBP) Exchange Rates Remain Appealing Ahead of Bank of England (BoE)
While the Pound is struggling to sustain its best levels against a strong New Zealand Dollar, it remains appealing overall.
Market expectations for continued optimism from the Bank of England (BoE) are keeping the Pound appealing ahead of the bank’s decision later.
BoE Governor Andrew Bailey has been optimistic about Britain’s economic recovery potential in recent speeches, so markets generally expect the bank to be fairly positive as well.
Michael Matthews, Fund Manager at Invesco, said:
‘The UK economy is likely to experience a relatively vigorous expansion in the second quarter as Covid restrictions are lifted.
This recovery has been further supported by the Chancellor’s recent budget which extended the furlough scheme and delayed the onset of fiscal consolidation to 2023.’
New Zealand Dollar (NZD) Exchange Rate Bullishness Limited by Poor Growth Data
The New Zealand Dollar is a currency often correlated to risk and trade-sentiment. As a result, it has benefitted from the rise in risk-sentiment in reaction to last night’s Federal Reserve policy decision.
The Fed took a more dovish stance on US monetary policy, urging caution and pouring cold water on speculation that the bank could soon become more hawkish.
As a result, markets became less anxious of hawkish US monetary policy and were more willing to take risks.
This boosted the New Zealand Dollar and helped it to hold above its lows against the strong Pound. However, its gains were limited by some weaker than expected New Zealand Q4 growth rate data.
New Zealand’s economy contracted at –1.0% quarter on quarter in Q4 2020, well below the expected rise of 0.1%. NZD investors are looking ahead of gloomy growth data to global recovery expectations, according to Analysts at Westpac:
‘A key driver (for the Kiwi) is expected to be a continuation of the global recovery which should see commodity currencies outperform,’
Pound New Zealand Dollar (GBP/NZD) Exchange Rate Could Return to Best Levels
If the Bank of England (BoE) takes a more hawkish tone in its policy decision today, the Pound to New Zealand Dollar exchange rate could edge nearer its best levels again.
The Pound remains appealing and if its strengthens further it may continue to hit new highs.
According to Analysts at Citibank however, the bank may attempt to take a dovish tone in order to prevent Sterling and gilt yields from rising further. The Analysts said:
‘The Bank currently has neither the policy (yield curve control) nor the tool (a flexible QE envelope) to push against higher gilt yields, nor against Sterling’s rise, so the main way to pass a dovish message would be to emphasize downside risks to the econ.’
As New Zealand growth data has been poor this week, the New Zealand Dollar’s appeal may also be limited.
As a result, the Bank of England’s (BoE) tone and tomorrow’s UK confidence data will likely drive the Pound New Zealand Dollar (GBP/NZD) exchange rate for the remainder of the week.