Pound New Zealand Dollar Exchange Rate Buoyed as RBNZ Confirms Rate Pause
The Pound New Zealand Dollar (GBP/NZD) exchange rate is trading close to a three-year high this morning, following the Reserve Bank of New Zealand’s (RBNZ) latest interest rate decision.
At the time of writing the GBP/NZD exchange rate is trading at around NZ$2.0860. Virtually unchanged from this morning’s opening levels. But up over one cent since the RBNZ rate decision.
New Zealand Dollar (NZD) Slides as RBNZ Leaves Rates on Hold
The New Zealand Dollar (NZD) is on the defensive this morning after the RBNZ delivered its latest interest rate decision.
As was widely expected, the RBNZ hit pause on its monetary tightening this month. Leaving the cash rate at 5.5%. The bank had previously stated that interest rates had peaked following its May meeting.
The Monetary Policy Committee today agreed to leave the Official Cash Rate (OCR) at 5.50% to ensure consumer price inflation returns to the 1 to 3% target range, while supporting maximum sustainable employment. https://t.co/x4xWlvGy7F pic.twitter.com/tnAbemsdvP
— Reserve Bank of NZ (@ReserveBankofNZ) July 12, 2023
This was the first time the RBNZ left its monetary policy unchanged in almost two years. Marking the end of its most aggressive hiking cycle since the official cash rate was introduced in 1999.
The minutes from the meeting saw the RBNZ note that its restrictive monetary policy is having the desired effect of dampening consumer spending and reducing inflationary pressures.
However, the bank sought to push back against suggestions the bank will begin cutting rates in 2024. With the RBNZ stating that interest rates will need to remain ‘at a restrictive level for the foreseeable future’.
Meanwhile a US Dollar (USD) selling bias is helping to temper the New Zealand Dollar’s losses this morning. A weaker ‘Greenback’ is helping to bolster risk appetite and prop up the ‘Kiwi’.
Pound (GBP) Steady Following BoE Financial Stability Report
The Pound (GBP) is holding its ground this morning, after the Bank of England (BoE) published its latest Financial Stability Report.
The BoE noted that the UK economy has so far shown remarkable resilience to higher interest rates. But also warned that higher rates are placing pressures on consumers and smaller businesses.
The report read:
‘The impact on the UK banking system through lower bank equity prices and increases in funding costs was limited, and market risk sentiment has stabilised since then. Nonetheless, elements of the global banking system and financial markets remain vulnerable to stress from increased interest rates, and remain subject to significant uncertainty, reflecting risks to the outlook for growth and inflation, and from geopolitical tensions.’
On the other hand, the BoE also noted the UK’s largest banks all passed its annual stress tests.
Pound New Zealand Dollar Exchange Rate Forecast: US Inflation to Infuse Volatility in GBP/NZD?
Looking ahead, the latest US consumer price index may infuse volatility into the Pound New Zealand Dollar exchange rate later this afternoon.
The US CPI figures are expected to report US inflation continued to cool last month. This could pull the US Dollar lower if it leads to a weakening of Federal Reserve rate hike bets.
Further weakness in the US Dollar could bolster the appeal of the New Zealand Dollar.
Meanwhile, the focus for GBP investors will turn to tomorrow’s UK GDP release. May’s figures are expected to report growth contracted by 0.3%.
A slump in growth may revive UK recession fears and could see the Pound stumble on Thursday morning.