Pound New Zealand Dollar (GBP/NZD) Weekly Forecast: Exchange Rate to Firm on AU Inflation?

The Pound New Zealand Dollar (GBP/NZD) exchange rate peaked in the second half of last week’s session, as Bank of England (BoE) optimism strengthened the Pound (GBP). Meanwhile, the New Zealand Dollar (NZD) slumped as NZ inflation printed below expectations.

What’s Been Happening: NZ Inflation Sours ‘Kiwi’ Sentiment

Sterling weakened against the ‘Kiwi’ in the fist half of the week, as a lack of significant data exposed the currency to losses. Russian offensives in Ukraine damaged global risk sentiment, while the UK ‘Partygate’ scandal inspired further GBP volatility.

In the meantime, NZD was able to gain strength on China’s GDP, which grew to 4.8% in the first quarter of 2022 on an annualised basis.

The New Zealand Dollar peaked against GBP midweek, before the Pound rebounded on comments from BoE policymaker Catherine Mann. Mann said the Monetary Policy Committee could look at whether a rate hike of 25 basis points or more might be necessary at the bank’s next meeting.

Denting the ‘Kiwi’, New Zealand’s inflation hit 6.9% in Q1 rather than 7.1% as expected, causing investors to worry that the Reserve Bank of New Zealand (RBNZ) may scale back its rate hike trajectory.

At the end of the week, Sterling dipped once more on poor retail sales and NZD was able to recoup some losses.

Three Things to Watch Out for This Week

  1. AU Inflation

Given the ‘Kiwi’s close correlation with the Australian Dollar (AUD), Australian inflation may affect NZD trading. If the CPI prints at 4.6% as expected, AUD upside could boost the New Zealand Dollar.

  1. New Zealand’s Trade Balance

As the ‘Kiwi’ is a commodity-linked currency, a trade surplus of NZ$329m as forecast, would likely buoy NZD midweek.

  1. BoE Commentary

The Bank of England Governor Andrew Bailey is due to speak on Thursday; if Bailey strikes a hawkish tone, the Pound may benefit.

Pound New Zealand Dollar Forecast

Also likely to affect the Pound New Zealand Dollar exchange rate is Thursday’s ANZ business confidence report, which is forecast to announce an improvement in morale; this may lend NZD upside.

The war in Ukraine could also affect GBP/NZD. If Ukraine’s allies continue to support President Zelenskyy’s strikes on Russian territory, risk-on sentiment could boost both GBP and the ‘Kiwi’.

Olivia Evershed

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