The Pound New Zealand Dollar (GBP/NZD) exchange rate fell to a 14-month low last Tuesday, but rallied by the end of the week. The recovery came as a gloomy market mood weighed on the riskier New Zealand Dollar (NZD).
What’s Been Happening: GBP/NZD Recovers from 14-Month Low
The New Zealand Dollar strengthened against a weaker Pound (GBP) early last week. The ‘Kiwi’ enjoyed its strong positive correlation to the Australian Dollar (AUD), which jumped after the Reserve Bank of Australia (RBA) struck a hawkish tone at its latest meeting.
However, NZD then slipped as the market mood soured. China has imposed economically damaging lockdowns in an attempt to contain Covid outbreaks.
In addition, the Federal Open Market Committee’s (FOMC) hawkish meeting minutes had investors worrying about an aggressive pace of tightening from the world’s largest cental bank.
Meanwhile, Sterling stumbled amid emerging reports of atrocities in Bucha, Ukraine. Kyiv accused Moscow of massacring civilians, shattering hopes of a peace deal.
The Pound showed resilience, however, rising against the weakening ‘Kiwi’ without a clear driver for the movement. GBP’s rally may have been technical correction as the UK currency had tumbled to multi-year lows against some of its peers.
Economic headwinds hit Sterling on Friday, although it was still able to firm against NZD.
Three Things to Watch Out for This Week
- RBNZ Interest Rate Decision
Markets are certain that the Reserve Bank of New Zealand (RBNZ) will raise rates this week, but by how much? A 25-bps hike could see NZD drop while a 50-bps hike might trigger a rally.
- UK Inflation
UK inflation is projected to hit a fresh 30-year high. Whether this will support Bank of England (BoE) rate hike bets or exacerbate the cost-of-living crisis remains to be seen.
- Risk Appetite
Market sentiment in European and Asian markets could affect GBP and NZD respectively. The Ukraine crisis and China’s Covid situation will likely impact risk appetite.
Be prepared for sharp movement this week amid some major market-moving events. The outcomes are uncertain, so we may witness volatility.