Pound New Zealand Dollar Exchange Rate Falls, New Zealand’s Central Bank Ends Bond Purchases

GBP/NZD Exchange Rate Sinks, New Zealand’s ‘Downside Risks of Deflation and High Unemployment Have Receded’

The Pound New Zealand Dollar exchange rate plummeted by 0.7% this morning after New Zealand’s central bank ended its NZ$100 billion bond purchases, paving the way for a possible rate hike as early as August. The pairing is currently fluctuating around NZ$1.97.

Sharon Zollner, the Chief Economist at ANZ Bank, comments:

‘The RBNZ has absolutely done enough hand-waving today to tick the ‘market-prep’ box for an August hike, with CPI and labour market data set to do the rest.’

As a result, confidence in New Zealand’s economy has grown, buoying demand for the ‘Kiwi’ as the nation slowly emerges from the Covid-19 pandemic.

New Zealand’s economy has been growing thanks to a boom in housing an robust consumer spending. This has caused some concerns about soaring inflationary pressures, however.

However, the Reserve Bank of New Zealand (RBNZ) struck a hawkish tone about the outlook for New Zealand’s economy saying:

‘Members agreed that the major downside risks of deflation and high unemployment have receded.

‘The (Monetary Policy) Committee agreed that a ‘least regrets’ policy now implied that the significant level of monetary support in place since mid-2020 could be reduced sooner.’

Although the bank held it’s interact rate at 0.25% today, the RBNZ is now expected to change its tack thanks the New Zealand’s efforts to contain the spread of the virus, with the last large-scale community case being reported in February of this year.

Consequently, with New Zealand’s economy expected to rebound faster than other economies, the outlook or the ‘Kiwi’ is looking positive.

Pound (GBP) Sinks Despite Returning Confidence to UK Markets

The Pound (GBP) struggled against the New Zealand Dollar today after June’s UK inflation data rose to its highest level in almost three years to 2.5%.  

The Office for National Statistics (ONS) cited transport costs as pushing up inflationary pressures, with petrol prices no much higher than in June last year.

The ONS commented:

‘Average petrol prices stood at 129.7 pence per litre in June 2021, compared with 106.5 pence per litre a year earlier. The June 2021 price is the highest recorded since October 2018.

‘In comparison, the UK was in the first national lockdown at this point last year and petrol prices were affected by reduced demand, reaching their lowest price in May 2020 for over four years.’

Coming up later today, the Bank of England’s deputy governor for markets and banking, David Ramsden, will deliver a speech.

Could a more hawkish statement from the BoE see the Pound New Zealand Dollar begin to claw back some of its losses?

Pound New Zealand Dollar Forecast: Could ‘Kiwi’ Remain Strong on Positive Economic Data?

Pound (GBP) traders will eye tomorrow’s release of the latest UK ILO unemployment rate data for May. If unemployment shows signs of falling, then we would see the GBP/NZD exchange rate edge higher.

Tomorrow will also see the release of the latest average earnings data for May. Any further improvements in the outlook for the British economy would be Pound-positive.

UK Covid-19 developments will also remain inf focus this week.

If Britain looks set to recover its economy post July 19 – when lockdown restrictions are due to be fully lifted – then Sterling could begin to head higher against the ‘Kiwi’.

Souring risk sentiment could drive down the risk-sensitive New Zealand Dollar this week.

Tomorrow will see the publication of the latest New Zealand inflation data for the second quarter as well as the latest NZ business PMI for June. Could an improvement in the outlook for the New Zealand economy, however, see the ‘Kiwi’ retain its strength?