Pound New Zealand Dollar Dips Following Surging NZ Inflation

The Pound New Zealand Dollar (GBP/NZD) exchange rate is slipping so far today after weakening sharply at the start of the week.

Rocketing third quarter New Zealand inflation has caused bond yields to jump and increased expectations for the Reserve Bank of New Zealand (RBNZ) to raise interest rates more aggressively, boosting the ‘Kiwi’.

What’s Been Happening: New Zealand Dollar Boosted by Jump in NZ Inflation

The GBP/NZD exchange rate has trended lower over the last week despite comments from Bank of England (BoE) policymakers hinting at interest rate rises that some investors are pricing in to happen at the end of this year or early 2022.

Falling UK unemployment to 4.5% and UK GDP rebounding 0.4% in August, from a -0.1% contraction, helped to underpin support for Sterling and cap losses against NZD.

Meanwhile, the New Zealand Dollar strengthened on improving market risk appetite, amid a rally in equity markets and soaring commodity prices that lifted the risk-sensitive ‘Kiwi’.

NZD exchange rates have been boosted at the start of this week’s session after third quarter inflation surged at the fastest pace in 10 years to 4.9%, above forecasts of 4.1%.

The jump in inflation pushed bond yields near to a three-year high and increased bets on the RBNZ hiking interest rates more aggressively, in turn supporting the New Zealand Dollar.

Three Things to Watch Out for This Week

  1. UK Inflation Rate

Forecasts point to the latest UK inflation rate data for September remaining at a nine-year high of 3.2%. Will another high reading increase the likelihood of the BoE raising interest rates this year?

  1. UK PMI Data

UK manufacturing and services PMIs for October released at the end of the week may weigh on the Pound as forecasts suggest private sector activity slowed this month, potentially causing concern about UK economic growth.

  1. RBNZ Interest Rate Hike Expectations

After data revealed New Zealand’s inflation rate soared in the third quarter, pressure has increased on New Zealand’s central bank to accelerate its interest rate hikes, potentially driving up bond yields and the New Zealand Dollar.

Pound New Zealand Dollar Forecast

The GBP/NZD exchange rate looks set for more volatility this week, with investors looking to the BoE and RBNZ for insight into when and how aggressively interest rate rises could happen.

High-impact UK manufacturing and services PMIs will likely drive additional movement in the Pound at the end of the week if the data raises concerns over the country’s economic recovery.

Andrew Roberts

Contact Andrew Roberts