Pound New Zealand Dollar (GBP/NZD) Exchange Rate Plummets on Sterling Headwinds

GBP/NZD Flops as Pound Tumbles amid Economic Pressures

(Updated 17:00, 18/08/2022) The Pound New Zealand Dollar (GBP/NZD) exchange rate dropped in Thursday’s European afternoon as downbeat comments from UK analysts compounded Sterling headwinds over protracted industrial action.

The debate over rail strikes became more heated as the day wore on, with transport secretary Grant Shapps claiming that ‘unions are hell-bent on causing as much misery as possible… [They] will be ruining millions of hard-working people’s summer plans [and] businesses too will suffer.’

Defending strikers actions, RMT boss Mark Lynch said ‘people are getting poorer every day of the week. People can’t pay their bills. They’re getting treated despicably at the workplace.’

Meanwhile, a study conducted by the University of York found that two-thirds of UK households will be trapped in fuel poverty by January, including an estimated 86.4% of pensioner couples and 90.4% of lone parents with two or more children.

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Pound New Zealand Dollar Exchange Rate Rises Amid Risk-Off Mood

The Pound New Zealand Dollar (GBP/NZD) exchange rate is trending higher this morning as a cautious market mood dampens support for the risk-sensitive New Zealand Dollar (NZD). Meanwhile, Pound (GBP) gains are capped as rail strikes are underway, with only 20% of UK train services running.

At the time of writing, GBP/NZD is trading at NZ$1.9213, up slightly from today’s opening levels.

New Zealand Dollar (NZD) Sinks on Fears of Economic Downturn

Following yesterday’s 50bps interest rate hike and ahead of this evening’s balance of trade, the New Zealand Dollar is trading down against its peers, propelled lower by risk-off sentiment and recession concerns.

Initially, the ‘Kiwi’ swung higher following the decision from the Reserve Bank of New Zealand (RBNZ) to hike interest rates by half a percentage point. The central bank further iterated the need to bring forward additional rate increases in order to control inflation.

Commenting on rising prices, the RBNZ said:

‘Global consumer price inflation has continued to rise, albeit with some recent reprieve from lower global oil prices. The war in Ukraine continues to underpin high commodity prices, with global production costs and constraints further exacerbated by supply-chain bottlenecks.’

Subsequently, however, worries over the likelihood of a global economic downturn reversed NZD gains. A weaker tone around the equity markets reflects traders’ current preference for safe-haven assets.

Also weighing upon the ‘Kiwi’ may be disappointing data from Australia. According to the Australian Bureau of Statistics, employment change missed expectations by a wide margin – printing at -40.9K rather than 25K as expected.

Pound (GBP) Trades Broadly Higher despite Rail Strikes

The Pound is trading up against the majority of its peers this morning, although gains remain limited.

Analysts at ING bank observed that Sterling closed yesterday’s session in a weaker position: head of markets Chris Turner says the bank wondered whether fears over the spending plans of prospective PM Liz Truss were driving a selloff in Gilts.

He adds, however, that ‘the UK’s five-year sovereign credit default swap continues to trade at a very narrow 17bp – suggesting these fiscal concerns may be overplayed.’

Weighing on GBP today, industrial action in the UK has ramped up as 45,000 rail workers go on strike amid disputes over pay, jobs and working conditions.

Mick Lynch, general secretary of the Rail, Maritime and Transport union (RMT) says the UK could be brought to a standstill by strikes which hit ‘every sector of the economy’.

He forecasts: ‘you’ll see it in education, in health, wider parts of the transport system, in all sectors, the private sector as well. People are fed up with the way they’ve been treated.’

Luke Chester, the organising director at the TSSA union in London clarifies:

‘What we need to resolve this dispute is a pay rise which reflects the cost of living increase that is affecting most people in this country very severely, we need job security.’

Pound New Zealand Dollar Exchange Rate Forecast: NZ Trade Balance to Direct Movement?

Looking ahead, New Zealand’s July trade balance data will be revealed this evening and is expected to print at NZ$-1500. If the country’s trade deficit more-than-doubles, as expected, the Pound New Zealand Dollar exchange rate may climb further on subsequent weakness in the ‘Kiwi’.

Elsewhere, Sterling sentiment is likely to revolve around today’s strike action alongside general risk appetite and other external factors, given a lack of significant UK data. If further disruption to Britain’s economy is forecast, Pound appeal may deteriorate.

Olivia Evershed

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