Pound New Zealand Dollar (GBP/NZD) Exchange Rate Refreshes Three-Week High amid RBNZ Decision and Risk Aversion

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Hits Fresh Three-Week High as Anxiety Grips Markets

(Updated 08:45, 25/05/23) The Pound New Zealand Dollar (GBP/NZD) exchange rate rose to a fresh three-week high during overnight trade as a downbeat market mood keeps the risk-sensitive ‘Kiwi’ firmly on the back foot.

The New Zealand Dollar (NZD) slumped yesterday morning after the Reserve Bank of New Zealand (RBNZ) signalled that interest rates have peaked. Since then, NZD exchange rates have remained under significant pressure amid widespread risk aversion.

Investors are anxious about the US debt ceiling crisis. Democrats and Republicans have just one week to agree a deal to raise the debt ceiling limit. But talks have stalled, and even once the two sides break the deadlock it will take days to pass the legislation through Congress.

If the debt ceiling isn’t lifted, the US government would not be able to service its debts, leading to a potentially ‘catastrophic’ default that would likely cause ‘substantial financial market stress’, according to Janet Yellen, US Secretary of the Treasury.

These fears are gripping markets today, draining demand for the risk-sensitive New Zealand Dollar.

Meanwhile, Bank of England (BoE) interest rate rise bets are bolstering the Pound (GBP) following yesterday’s hot inflation reading. While the increasingly risk-sensitive UK currency is struggling against its safer peers, it is holding strong against the ‘Kiwi’.

This morning, GBP/NZD is wavering just shy of a three-week high of NZ$2.0312 hit during overnight trade. At the time of writing, the pairing is trading at NZ$2.0288.

Original article continues below:

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Stays Strong amid Risk Aversion

(Updated 16:50, 24/05/23) The Pound New Zealand Dollar (GBP/NZD) exchange rate held on to the impressive gains made in the wake of the Reserve Bank of New Zealand (RBNZ) rate decision this morning as a dire market mood kept the ‘Kiwi’ under pressure.

The New Zealand Dollar (NZD) slumped early this morning as the RBNZ delivered a dovish surprise. The bank wrong-footed markets by signalling an end to its rate hiking cycle, causing a selloff in NZD.

Expectations for more Bank of England (BoE) rate hikes kept the Pound (GBP) underpinned after UK core inflation unexpectedly spiked to a 31-year high.

The risk-sensitive ‘Kiwi’ was unable to recoup any of its losses as widespread risk aversion dampened NZD demand.

At the time of writing, GBP/NZD is trading at NZ$2.0256. This is up 1.9% on the day and just shy of the three-week high of NZ$2.0296 hit earlier in the session.

Original article continues below:

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Skyrockets as Markets Reprice RBNZ and BoE Rate Hike Bets

The Pound New Zealand Dollar (GBP/NZD) exchange rate surged this morning, roaring to a three-week high, after the Reserve Bank of New Zealand (RBNZ) surprised markets by suggesting it was done raising interest rates.

At the time of writing, GBP/NZD is trading at around NZ$2.0245, up almost 2% on the day.

New Zealand Dollar (NZD) Plummets after RBNZ Indicates Policy Pause

The New Zealand Dollar (NZD) plunged earlier this morning after the RBNZ signalled that it was done raising interest rates, defying market expectations.

The bank lifted its official cash rate (OCR) by 25bps, bringing it to 5.5%. However, it did not revise its OCR forecast, which showed the rate peaking at the same level, indicating that the RBNZ believes its rate hiking cycle is over.

Markets had been expecting the central bank to lift its OCR projection amid forecasts that large spending plans unveiled by the New Zealand government last week would add to inflationary pressures. As a result, today’s decision was a dovish surprise that sparked a selloff in NZD.

Adding to the New Zealand Dollar’s woes, a bearish mood has swept through markets, dampening the appeal of the risk-sensitive ‘Kiwi’. Investors are anxious about the US debt ceiling crisis, as talks to avert a catastrophic default on US debt seem to have stalled.

At the time of writing, the ‘Kiwi’ has plunged more than 1.8% against the Pound (GBP).

Pound (GBP) Climbs as Inflation Exceeds Forecasts

Meanwhile, Sterling is enjoying some support this morning after the UK’s latest consumer price index exceeded forecasts.

While the headline inflation rate eased sharply from 10.1% to 8.7%, this was still above forecasts of 8.2%. Furthermore, core inflation unexpectedly spiked from 6.2% to a 31-year high of 6.8%.

The hotter-than-forecast CPI has raised expectations that the Bank of England (BoE) will continue to tighten monetary policy. UK government bond yields – which often indicate BoE rate hike bets – surged to a fresh seven-month high.

The risk aversion gripping markets saw the increasingly risk-sensitive Pound struggle to rise against its safer peers this morning, but Sterling skyrocketed against the riskier New Zealand Dollar.

GBP/NZD Exchange Rate Forecast: BoE’s Bailey to Boost the Pound?

Moving forward, the Pound could enjoy further gains later this morning as BoE Governor Andrew Bailey is due to speak. Bailey recently lifted GBP exchange rates by suggesting that persistently high core inflation, driven up by rising wages, could force Threadneedle Street to continue raising interest rates.

If Bailey delivers a hawkish response to today’s CPI data, Sterling could climb even higher against the ‘Kiwi’.

Meanwhile, the ongoing risk-off market mood is likely to maintain pressure on the New Zealand Dollar. NZD’s only respite may come if there is a breakthrough in the US debt ceiling deadlock, which would likely cheer markets. However, this seems unlikely.

Samuel Birnie

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