Pound New Zealand Dollar Exchange Rate Drops as NZ Government Bonds Added to Bond Index

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Slides as NZ Government Bonds Enter World Index

The Pound New Zealand Dollar (GBP/NZD) exchange rate is falling this morning, as the New Zealand Dollar strengthens following the addition of NZ Government bonds to the world government bond index.

The news sees the GBP/NZD exchange rate fall to around NZ$1.9531, a drop of around 0.6% from the morning’s opening rates.

New Zealand Dollar (NZD) Buoyant amid Bond Recognition

The New Zealand Dollar (NZD) is strengthening across the board this morning, following the addition of their government bonds to the FTSE-Russel World Government Bond Index on Monday.

With the bonds meeting all criteria for inclusion, investors are celebrating, prompting the ‘Kiwi’ to rally against all major peers.

While the news was announced back in April 2022, the addition was finalised on Tuesday. A statement from the FTSE-Russel WGBI stated:

‘New Zealand (NZD) government bonds will be included in the FTSE World Government Bond Index (WGBI) after the New Zealand local currency fixed rate government bond market met all three eligibility criteria (market size, credit rating and a minimum Accessibility Level of “2”) for inclusion’

Elsewhere, a risk-on market mood is further serving to bolster the risk-sensitive ‘Kiwi’, as investors are favouring riskier currencies so far.

Chinese stocks ticking higher has also benefitted NZD. New Zealand’s status as a key trading partner for China has allowed the ‘Kiwi’ to benefit from the improving outlook for the Chinese economy.

Pound (GBP) Slumps as Cost-Of-Living Crisis Deepens

The Pound (GBP) is struggling for support this morning as concerns deepen around the cost-of-living crisis.

The British Retail Consortium (BRC) highlights that food prices have climbed at a record pace, soaring by 11.6% year on year. This is weighing on Sterling by showing just how significant an impact inflation is having on the average consumer.

The price rises come as commodity prices have soared, alongside energy and a tightening labour market. Mike Watkins, the Head of Retailer and Business Insight at NielsenIQ added:

‘External factors are keeping shop price inflation at record highs and the challenging economic conditions are significantly impacting consumer confidence and retail spend.’

Anticipation for tomorrow’s Bank of England (BoE) rate hike have mollified GBP’s losses. However, with the UK economy staring down a possible recession, the outlook could be troublesome for investors.

Pound New Zealand Dollar Exchange Rate Forecast: BoE In Focus

The core catalyst of movement for the GBP/NZD exchange rate is likely to be tomorrow’s interest rate decision from the BoE.

As the BoE has to press ahead without knowledge of the UK government’s fiscal plan, the hike could be more modest than the currently expected 75bps hike. Should the bank deliver a dovish hike the Pound is likely to slump.

For NZD, Chinese PMI data is due on Thursday. With another contraction expected, the ‘Kiwi’ may weaken.

John Mulcahey

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