The Pound New Zealand Dollar (GBP/NZD) exchange rate climbed to its highest level in over three years last week, before sharply trimming its gains at the end of the session.
What’s Been Happening: GBP/NZD Soars amid BoE-RBNZ Divergence
After a quiet start to the week, the Pound (GBP) began to march higher against the New Zealand Dollar (NZD). Markets began pricing in multiple further interest rate hikes from the Bank of England (BoE) following a shock spike in core inflation the previous week.
Meanwhile, NZD was still reeling from the Reserve Bank of New Zealand’s (RBNZ) dovish rate decision at the end of May.
This widening policy divergence between the two central banks carried GBP/NZD to a three-year high by Thursday, with a souring market mood through the first part of the week adding to the risk-sensitive New Zealand Dollar’s woes.
However, Sterling then suffered some profit-taking as investors cashed in on the UK currency’s impressive rally.
At the same time, a recovery in risk appetite lifted the ‘Kiwi’. Markets cheered the news that US Congress had passed legislation to lift the debt ceiling, avoiding a catastrophic US debt default.
Three Things to Watch Out for This Week
- Risk Appetite
With economic data in short supply this week, risk appetite could drive GBP/NZD. Could a souring market mood see the riskier ‘Kiwi’ stumble against the safer Pound?
- Central Bank Expectations
BoE rate hike bets could continue to underpin Sterling this week, while expectations of an RBNZ policy pause may weigh on the New Zealand Dollar.
- AUD Movement
Amid the continued absence of New Zealand data, NZD could be impacted by its positive correlation to the Australian Dollar (AUD). Will signs of a slowing Australian economy reflect poorly on the ‘Kiwi’?
GBP/NZD Forecast
With data in such short supply this week, GBP/NZD movement could be unpredictable. Risk appetite will likely drive the biggest swings in the currency pairing. Meanwhile, the expected divergence between the BoE and the RNBZ could keep the Pound afloat.