Pound New Zealand Dollar (GBP/NZD) Exchange Rate Trims Gains following RBNZ’s Hawkish Hike

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Slips following Hawkish RBNZ Decision

The Pound New Zealand Dollar (GBP/NZD) exchange rate trimmed its gains overnight, retreating from a three-month high, following the Reserve Bank of New Zealand’s (RBNZ) interest rate decision.

At the time of writing, GBP/NZD is trading at around NZ$1.9414, having fallen by 0.3% since this morning’s opening levels.

New Zealand Dollar (NZD) Rises as RBNZ Raises Interest Rates

The New Zealand Dollar (NZD) strengthened overnight after the RBNZ delivered a hawkish hike.

The central bank raised rates by 50bps, as expected, bringing the official cash rate (OCR) to a 14-year high of 4.75%.

Although this move had been largely priced in by currency traders, signals that the RBNZ would raise rates even further lifted the ‘Kiwi’ Dollar.

Many other central banks around the world have started to either slow their pace of policy tightening or signal that such a slowdown may be imminent. However, the RBNZ stuck to its previous predictions that it will need to raise the OCR to 5.5%.

With another 75bps of tightening still in the pipeline, NZD strengthened.

However, the New Zealand Dollar’s gains seem limited. A gloomy mood in markets is dampening the risk-sensitive currency’s appeal.

Pound (GBP) Subdued amid Lack of Data

Meanwhile, the Pound (GBP) is struggling to hold on to the impressive gains made during yesterday’s trade.

A surprise recovery in the UK services sector eased recession fears and boosted Bank of England (BoE) rate hike bets yesterday, sending the Pound soaring.

However, amid a lack of fresh economic data today, GBP is ceding ground against many of its peers.

In the absence of data, GBP investors may look to local headlines for fresh impetus. One issue that has driven the Pound in recent days is the Northern Ireland Protocol dispute. Reports that the UK and EU were close to reaching a deal on post-Brexit trade arrangements lifted the Pound, although No 10. has played down the nearness of a deal amid rumblings of rebellion from some Tory backbenchers.

The story is constantly developing, and today’s headlines suggest that Prime Minister Rishi Sunak may still be planning to announce a deal this week. This optimism could be providing Sterling with some support, although investors are likely wary of jumping the gun.

GBP/NZD Exchange Rate Forecast: Movement Muted amid Lack of Data?

Amid the lack of British economic data today, the Northern Ireland Protocol may remain the focus for many GBP investors. Any more setbacks could dent Sterling, while hints that a deal will be announced this week could boost the currency.

The Protocol will likely come up at Prime Minister’s Questions (PMQs) today. While the event is often more about verbal sparring than policy, traders could be watching for any clues as to when we can expect an announcement on the Protocol.

As for the ‘Kiwi’ Dollar, risk appetite may be the defining factor through the remainder of today’s trade. If the market mood remains sour, the riskier currency could trim some of its post-RBNZ gains.

Overall, however, with data thin on the ground, GBP/NZD could see limited movement.

The latest meeting minutes from the Federal Open Market Committee (FOMC) tonight could impact risk appetite. If policymakers at the US central bank struck a hawkish tone at the last interest rate decision, worries about the impact of higher global borrowing costs could see sentiment deteriorate further, potentially creating headwinds for NZD.

Samuel Birnie

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