Pound New Zealand Dollar (GBP/NZD) Exchange Rate Plunges to Seven-Week Low following RBNZ Decision

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Slumps as RBNZ Hints at Further Rate Hikes

The Pound New Zealand Dollar (GBP/NZD) exchange rate plunged to a seven-week low last night after the Reserve Bank of New Zealand (RBNZ) warned that it may raise interest rates again early next year. So far this morning, Sterling has managed to recoup some losses.

At the time of writing, the GBP/NZD exchange rate is trading at around NZ$2.0609, down over 0.3% on the day but up from an overnight low of NZ$2.0496.

New Zealand Dollar (NZD) Soars as RBNZ Strikes Hawkish Tone

The New Zealand Dollar (NZD) surged higher last night after the RBNZ struck a hawkish tone following its latest interest rate decision.

Although the central bank left rates unchanged, as expected, it surprised markets by signalling a willingness to raise rates further if necessary. The RBNZ indicated that stronger-than-expected demand and wage growth were possible factors that could stall progress on taming inflation.

Furthermore, the bank upwardly revised its projections for the official cash rate (OCR) by 10bps. The RBNZ now expects OCR to peak at 5.69% in September 2024, rather than 5.59%. With rates currently at 5.5%, the new projections indicate a 75% chance of another 25bps rate hike early next year.

This hawkish surprise saw investors flock to the ‘Kiwi’, sending NZD exchange rates sharply higher overnight.

The New Zealand Dollar has since trimmed these gains as some investors seek to cash in on the sudden appreciation in value.

Pound (GBP) Muted amid Lack of Data

Meanwhile, the Pound (GBP) is subdued this morning amid a lack of UK economic data.

Recent hawkish comments from Bank of England (BoE) officials may be putting a floor under Sterling, preventing steeper losses.

The most recent remarks came from Jonathan Haskel, a hawkish external rate-setter on the bank’s Monetary Policy Committee.

Speaking yesterday evening, Haskel said:

‘The labour market is still historically tight. At current rates of change it would take at least a year to fall back to average pre-pandemic tightness…

‘Rates will have to be held higher and longer than many seem to be expecting.’

Haskel’s comments add to an increasingly unified message from BoE policymakers that markets are underestimating how long interest rates will need to remain restrictive. This continues to lend the Pound support.

GBP/NZD Exchange Rate Forecast: Risk Appetite to Drive Movement

Looking ahead, risk appetite could drive GBP/NZD movement through the remainder of today’s session. The mood currently seems cautiously upbeat, which may help to keep the risk-sensitive ‘Kiwi’ afloat against the Pound.

Later this afternoon, US GDP data could affect the market mood. The second estimate for GDP growth is expected to show that the American economy accelerated in the third quarter.

On the one hand, this could boost risk appetite as it suggests the world’s largest economy remains robust despite the Federal Reserve’s aggressive rate hiking cycle. On the other, it could fuel speculation that the Fed will leave interest rates higher for longer, which could sour the market mood.

Overnight, an expected deterioration in New Zealand business confidence this month could dent NZD.

Samuel Birnie

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