The Pound New Zealand Dollar (GBP/NZD) exchange rate jumped last week, surging to its highest level since mid-February 2022, after the Reserve Bank of New Zealand (RBNZ) surprised markets by signalling a pause in its tightening cycle.
What’s Been Happening: NZD Collapses after RBNZ Signals Pause
The GBP/NZD exchange rate was initially muted last week. Downbeat PMI data weighed on the Pound while a bearish mood put pressure on the risk-sensitive New Zealand Dollar (NZD).
The ‘Kiwi’ then cratered after the RBNZ delivered a dovish surprise at its latest interest rate decision. Markets had been expecting the bank to signal further rate hikes to come, in response to the New Zealand government’s spending plans, which could push up inflation.
Instead, the bank indicated that interest rates had peaked, sparking an NZD selloff.
This continued to weigh on the ‘Kiwi’ through to the end of the week, while a souring market mood amid the US debt ceiling crisis added to NZD’s losses.
Meanwhile, the UK’s latest consumer price index initially infused the Pound (GBP) with volatility midweek. Eventually, Sterling climbed higher as the hot CPI reading boosted Bank of England (BoE) interest rate rise bets.
Strong UK retail sales data on Friday saw GBP/NZD consolidate its gains, hitting a 15-month high.
Three Things to Watch Out for This Week
- Risk Appetite
Market sentiment could drive much of the movement in the riskier ‘Kiwi’. Could a resolution to the US debt ceiling crisis cheer markets, thereby boosting the New Zealand Dollar?
- New Zealand Business Confidence
Economists expect a modest improvement in business confidence this month, which could lend NZD some support.
- UK Manufacturing PMI
The only UK data of note this week is the final manufacturing PMI. If the score is revised higher, Sterling could find some support.
GBP/NZD Forecast
With high-impact data in short supply this week, the market mood could determine the overall trajectory of the GBP/NZD exchange rate. If US lawmakers can resolve the debt ceiling crisis, a sharp improvement in sentiment may see the ‘Kiwi’ crawl back up from its 15-month low against the Pound.