The Pound New Zealand (GBP/NZD) exchange rate tumbled to a four-month low last week as surging commodities prices saw the ‘Kiwi’ soar against a weakening Pound (GBP).
GBP/NZD hit a fresh four-month low overnight on Monday but has since managed to recoup some losses. However, the currency pair remains below last week’s levels.
What’s Been Happening: GBP/NZD Plunges as Ukraine Crisis Worsens
The New Zealand Dollar (NZD) strengthened at the start of last week, with the risk-sensitive currency boosted by an upbeat market mood and stronger-than-expected Chinese PMIs.
The commodity-linked ‘Kiwi’ continued to rise through the week as the Russia-Ukraine crisis boosted commodities prices. As Russia and Ukraine are both key producers of raw materials, the ongoing conflict has seen demand spike and supplies dwindle.
This drove NZD higher throughout the week, with the ‘Kiwi’ hitting a four-month high against the Pound.
Sterling’s downside came as the Russia-Ukraine war continued to weigh on GBP exchange rates. Economists expect the conflict and related sanctions to dent economic growth in the UK.
The Pound ticked slightly higher on Wednesday, boosted by a modest recovery in European risk appetite and some dip-buying.
However, Russia’s invasion of Ukraine intensified as the week went on, pushing Sterling lower. At the end of the week, Russia captured Ukraine’s largest nuclear power plant, shelling the site in the process, sparking widespread risk aversion.
Three Things to Watch Out for This Week
- Russia-Ukraine War
The ongoing invasion could continue to dominate markets this week. Any negative headlines will likely weigh on the Pound.
- Commodities Prices
Skyrocketing commodities prices have been a key driver for strength in the ‘Kiwi’, which has manged to shrug off the prevailing risk-off mood. If materials prices retreat, NZD could come under pressure.
- UK GDP
Economists expect UK GDP to have grown by 0.2% in January, after shrinking by 0.2% in December. Any surprise results could trigger significant movement in GBP.
GBP/NZD Forecast
The market is particularly unpredictable at the moment, with the events unfolding in Ukraine determining most movement. If the Russian invasion loses steam, as some reports suggest, then GBP/NZD could regain some ground.