Pound New Zealand Dollar (GBP/NZD) Exchange Rate Extends Upside on ‘Dovish’ RBNZ Rate Hike

Pound New Zealand (GBP/NZD) Exchange Rate Continues Climb to Trade at Near One-Month High

(Updated 16:00, 13/4/22) The Pound New Zealand Dollar (GBP/NZD) exchange rate extended its upside today, rising to a near one-month high.

The movement was caused primarily by a sell-off in the New Zealand Dollar (NZD) after the Reserve Bank of New Zealand (RBNZ) enacted a ‘dovish’ rate hike. Although the central bank raised rates by a steeper-than-expected 50 bps, its accompanying commentary was downbeat. The RBNZ said the move was the ‘path of least regret’, highlighting the country’s difficult economic position.

At the time of writing, GBP/NZD is trading at around NZ$1.923, its highest level since 17 March.

Original article continues below:

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Soars following ‘Dovish’ RBNZ Hike

The Pound New Zealand Dollar (GBP/NZD) exchange rate is trading at a three-week high today after the Reserve Bank of New Zealand (RBNZ) enacted a ‘dovish’ rate hike, triggering a sell-off in the New Zealand Dollar (NZD).

Meanwhile, Sterling sentiment is mixed this morning after UK inflation exceeded forecasts.

New Zealand Dollar (NZD) Plunges despite 50-bps Rate Rise

The New Zealand Dollar experienced some turbulence last night as the RBNZ surprised markets at its interest rate decision.

Traders had expected the central bank to raise its overnight cash rate (OCR) by 25 bps. Instead, the RBNZ enacted a 50-bps rate rise.

Commenting on its decision, the bank said:

‘The Committee agreed that their policy ‘path of least regret’ is to increase the OCR by more now, rather than later, to head off rising inflation expectations’.

NZD initially spiked at the news before reversing direction and tumbling to a three-week low.

The downside came as investors reassessed the RBNZ’s future tightening of monetary policy. Although the rise was steeper than expected, it may mean the OCR won’t rise as high as previously expected.

Jason Wong, a currency strategist at Bank of New Zealand, said the hike was ‘dovish’.

‘A greater hike now reduces the chance of a larger increase later. In that sense, it was a dovish 50 basis-point hike with no change in the RBNZ’s view of the likely terminal rate.’

The aggressive action also highlights the difficult economic situation in New Zealand. There are already signs of economic slowdown in the country, and tightening policy too quickly could smother the recovery. However, if the RBNZ doesn’t get on top of soaring inflation now then it could become much harder to manage down the line.

Pound (GBP) Mixed after Hot UK CPI

Meanwhile, the Pound (GBP) faces headwinds of its own this morning.

UK inflation exceeded forecasts in March, jumping from 6.2% to 7%. Sterling stumbled on the news as surging prices exacerbate the UK’s cost-of-living crisis.

However, higher inflation could also force the Bank of England (BoE) to continue raising interest rates, despite its recent dovish rhetoric. Following the CPI, UK government bond yields – often an indicator of rate hike bets – rose to a fresh six-year high. This seems to have helped the Pound recover its initial losses, although it may find its gains limited.

GBP/NZD Exchange Rate Forecast: Pound’s Gains Limited?

Looking ahead, GBP/NZD could struggle to make further gains today. As markets recover from the initial shock of the RBNZ decision, the ‘Kiwi’ could regain some ground.

Meanwhile, the UK inflation data may continue to cause movement as markets weigh up the UK’s cost-of-living crisis and the likelihood of more rate rises from the BoE.

Sterling could also be affected by the latest ‘partygate’ revelations after Prime Minister Boris Johnson and Chancellor Rishi Sunak were both among those fined for breaching Covid lockdown laws. Tory MPs have largely come out in support of Johnson, so a leadership contest is unlikely. Still, the political headwinds may affect GBP.

Samuel Birnie

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