Ahead of the Reserve Bank of New Zealand’s (RBNZ) latest interest rate decision, the Pound New Zealand Dollar (GBP/NZD) exchange rate is trending higher after experiencing volatility through last week.
What’s Been Happening: Pound Plummets amid UK Fuel Shortages
GBP/NZD fluctuated significantly last week as fuel shortages hit the UK in midweek trade.
The Pound dropped sharply as the petrol crisis gripped the UK. Along with soaring energy prices, the furlough scheme ending, and supply chain problems, concerns over the impact on UK economic growth leading to stagflation caused Sterling to plummet.
However, reports the fuel crisis was starting to ease and upwardly revised second quarter UK GDP from 4.8% to 5.5% helped the Pound to rally at the end of the week.
Meanwhile, the risk-sensitive New Zealand Dollar came under heavy pressure last week as market sentiment soured.
The threat of Chinese property giant Evergrande defaulting on debt payments, the growing global energy crisis and power outages in China halting factory production all sapped risk appetite and weighed on NZD exchange rates.
In addition, rising coronavirus cases of the Delta variant and reports of slow vaccination uptake in New Zealand also dented NZD exchange rates before improving market sentiment on Friday prompted a ‘Kiwi’ recovery.
Three Things to Watch Out for This Week
- RBNZ Interest Rate Decision
The New Zealand Dollar could receive significant support this week as the RBNZ is widely expected to raise interest rates from 0.25% to 0.50%, the first rate hike since the pandemic.
- UK Economic Concerns
Following September’s UK services PMI today that highlighted rising inflation linked to surging fuel, energy and staff costs, and supply chain constraints, GBP exchange rates remain vulnerable to fears of stagflation.
- Market Risk Appetite
Shifting market risk appetite may drive movement in GBP/NZD again this week. The Evergrande crisis threatening an equity market selloff, impasse in US Congress over the US debt ceiling, and China’s energy shortages could all cause swings in market mood.
Pound New Zealand Dollar Forecast: RBNZ to Boost NZD
The Pound New Zealand Dollar exchange rate looks set to experience swings again this week, with the RBNZ likely to drive significant movement in the ‘Kiwi’.
The ongoing fuel shortages in the UK continues to highlight supply chain problems that could derail Sterling’s recovery on further negative developments.