GBP/NZD Extends this Morning’s Uptrend as Risk Aversion Persists
(Updated 15:45, 06/01/2022) The Pound New Zealand Dollar (GBP/NZD) exchange rate has maintained its impressive rally so far, as a risk-off mood continues into the afternoon. While the Pound (GBP) continues to face pressure from NHS staffing issues, Sterling is holding strong against its risk-sensitive peers.
Meanwhile, the New Zealand Dollar (NZD) faces additional downside from diverging central bank policies: the Bank of England (BoE) raised interest rates unexpectedly in December and according to yesterday’s minutes from the Federal Open Market Committee (FOMC), the Federal Reserve is not too far behind.
Pressure is mounting upon the Reserve Bank of New Zealand (RBNZ) to maintain its aggressive policy stance, as the central bank is generally considered one of the most hawkish. Into 2022, the RBNZ is expected to hike rates at six of seven meetings and has signaled the cash rate to reach 2.6% by end of 2023.
Original article continues below:
Pound New Zealand Dollar Exchange Rate Skyrockets to 16-Month High on ‘Kiwi’ Selloff
The Pound New Zealand Dollar (GBP/NZD) exchange rate has spiked this morning as a risk-off impulse in the markets initiated a New Zealand Dollar (NZD) selloff.
At the time of writing, GBP/NZD is trading at NZ$2.00, up 0.4% from today’s opening levels.
New Zealand Dollar (NZD) Sinks on Low Risk Appetite
The New Zealand Dollar (NZD) is extending its downtrend today as a cautious market mood dims appeal for the risk-sensitive currency.
Fuelling bearish trading is a weaker tone around the equity markets: following yesterday’s hawkish policy outlook from the Federal Reserve FOMC, US stock markets were subdued.
Also affecting ‘Kiwi’ sentiment is news that the country may face an Omicron outbreak imminently, despite stringent Covid-19 containment measures. New Zealand has implemented a hard border against Australia and banned quarantine-free travel amid a surge in Australian Omicron cases.
Yet experts have warned that a surge in cases amongst those entering the country could result in the virus spilling into the community.
According to University of Canterbury Professor, Michael Plank:
‘For the bulk of last year we were seeing two or three cases a day on average and we’re now seeing cases in the 20s or 30s coming into [the Managed Isolation and Quarantine system] per day, so that just increases the risk the virus will leak out into the community.’
Pound (GBP) Faces Headwinds from Market Mood
While trading up against its risk-on peers, the Pound (GBP) is trending down against safe-haven currencies today, such as the US Dollar (USD) and the Euro (EUR). This reflects markets’ low risk appetite amidst Omicron uncertainty.
As Prime Minister Boris Johnson continues to resist pressure to apply new Covid-19 restrictions, health officials insist that ministers must act now to alleviate the NHS staffing crisis.
Johnson was lauded by Conservative MPs yesterday for sticking to modest Plan B measures, receiving commendation from former Prime Minister Theresa May and congratulations from former health secretary Jeremy Hunt for ‘holding his nerve’.
Meanwhile, The NHS Confederation, which represents the whole healthcare system, is calling for a range of new measures to help overstretched hospitals and struggling ambulance, mental health, community, GP and social care services:
‘It’s clear that we are facing a staffing crisis in the NHS… The government now needs to do all it can to mobilise more staff and other resources for the NHS.’
GBP/NZD Exchange Rate Forecast: Pound to Trade on Covid Headwinds?
Looking ahead, a lack of significant data for either currency through the remainder of today’s session leaves the Pound New Zealand Dollar exchange rate to trade on external factors.
A slightly better-than-expected UK services PMI has done little to buoy Sterling so far this morning, suggesting that investors are more preoccupied with Omicron headlines and unfavourable risk sentiment.
Meanwhile, the New Zealand Dollar is unlikely to shrug off earlier losses without sufficient economic stimuli and may well extend its downturn.