Pound New Zealand Dollar Exchange Rate Plunges as RBNZ Delivers Another 50bps Hike
The Pound New Zealand Dollar (GBP/NZD) exchange rate is on the backfoot this morning after the Reserve Bank of New Zealand (RBNZ) delivered its latest interest rate decision.
At the time of writing the GBP/NZD exchange rate is trading at around NZ$1.9350, down roughly 0.5% from today’s opening rate.
New Zealand Dollar (NZD) Soars as RBNZ Signals More Hikes to Come
The New Zealand Dollar (NZD) shot higher overnight on Tuesday as the RBNZ raised interest rates again.
The RBNZ raised its Official Cash Rate (OCR) from 1.5% to 2%. The first time the bank has delivered consecutive 50 basis point increases.
This leaves the RBNZ well ahead of the curve when it comes to raising interest rates. The bank has now raised its OCR by 175 basis points since October.
However the move had been largely priced in by NZD investors, with the ‘Kiwi’s resulting rally driven primarily by the bank’s outlook on monetary policy.
The RBNZ surprised with its broadly hawkish forward guidance. The bank signalled it is likely to maintain the current pace of rate hikes as it seeks to tame inflation.
The RBNZ said:
‘It remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and support maximum sustainable employment.
‘The Committee is resolute in its commitment to ensure consumer price inflation returns to within the 1-3% target.’
The RBNZ’s latest forecasts suggest the OCR will peak at nearly 4% in 2023.
The New Zealand Dollar has since walked back some of its gains, however. NZD investors fear there is a risk that higher borrowing costs could stifle economic growth if the RBNZ isn’t careful.
Pound (GBP) Subdued as Sue Gray Report Releases
The Pound (GBP) is trading without any strong directional bias this morning. GBP investors are wary of making any aggressive bets following the publication of the Sue Gray ‘partygate’ report.
In her final report into lockdown breaking parties held at No 10, Gray reiterates her view that there was a failure of leadership at Downing Street.
The report read
‘Even allowing for the extraordinary pressures officials and advisers were under, the factual findings of this report illustrate some attitudes and behaviours inconsistent with that guidance.
‘The senior leadership at the centre, both political and official, must bear responsibility for this culture.’
The resulting political uncertainty is likely to keep a cap on the Pound today.
Pound New Zealand Dollar Forecast: UK Cost of Living Plan to Boost Sterling?
The Pound New Zealand Dollar (GBP/NZD) exchange rate could find support later in the week amidst reports the UK government is set to publish a plan to help mitigate the cost of living crisis.
Reports suggest the details of the plan could come as early as Thursday. GBP investors will be hoping for some substantial support from the government, which could prop up consumer spending and help the UK avoid a recession.
Meanwhile, in the absence of any other notable NZD data releases the direction of the New Zealand Dollar may be dictated by market risk appetite. Will a cautious market mood lead the ‘Kiwi’ to reverse its recent gains?