The Pound New Zealand Dollar (GBP/NZD) exchange rate traded in a wide range last week, as hawkish rhetoric from the Reserve Bank of New Zealand (RBNZ) supported the ‘Kiwi’.
What’s Been Happening: NZD Buoyed by Hawkish RBNZ
At the start of the week, the New Zealand Dollar (NZD) enjoyed tailwinds due to its close correlation to the Australian Dollar. On Tuesday, a surprise hike from the Reserve Bank of Australia (RBA) lifted the ‘Kiwi’ by proxy.
This was then followed by the Reserve Bank of New Zealand’s (RBNZ) latest financial stability report. The report brought cheer to NZD investors, assuring them of security in the NZ banking sector. Furthermore, domestic unemployment held at 3.4%, indicating a tight labour market.
However, bearish trade weighed on the risk-sensitive antipodean currency during Wednesday’s session. The RBNZ did acknowledge some emerging pockets of weakness, such as households and businesses facing pressure from debt servicing.
On Friday, the ‘Kiwi’ managed to recuperate amid upbeat trade as RBNZ rate hike bets stayed elevated.
Meanwhile, the Pound (GBP) was undermined at the beginning of the week amid a thin data calendar. A downbeat manufacturing index print further weighed on Sterling.
However, towards the end of the week GBP investors reaffirmed bets on hawkish action from the Bank of England (BoE). As such, Sterling was able to weather a week relatively bereft of impactful data.
Three Things to Watch Out for This Week
- BoE Interest Rate Decision
While markets expect a 25bps hike, if the BoE takes a hawkish stance with their forward guidance GBP could strengthen.
- BusinessNZ PMI
The BusinessNZ index for April’s activity is forecast to print at 50.7, returning to growth. If this matches forecasts, NZD could rally.
- UK GDP
A first quarter expansion of 0.1% is forecast. If true, signs that the UK economy has dodged a recession could cheer GBP investors.
GBP/NZD Outlook
Elsewhere, China’s inflation rate could impact the ‘Kiwi’. Chinese headline inflation is forecast to have cooled in April, which may weigh on NZD due to the countries’ close trading relationship.