GBP/NZD exchange rate trends sharply higher following RBNZ decision
The pound New Zealand dollar (GBP/NZD) exchange rate rocketed overnight, hitting an 8-day high as the Reserve Bank of New Zealand (RBNZ) chose to trim interest rates by 25bps. The move had not been forecast, and represented a dovish pivot from central bank policymakers.
At the time of writing, GBP/NZD is trading at NZ$2.1357, having climbed by almost 0.9% in the past 24 hours.
New Zealand dollar (NZD) plummets as bank decision surprises
The New Zealand dollar (NZD) is weakening across the board today after the RBNZ unexpectedly cut interest rates. Markets and economists had predicted an interest rate hold at 5.5%.
Defending the bank’s decision, Governor Adrian Orr explained that he is confident inflation is back within its target band, therefore interest rate normalisation can commence.
‘Projections show we are going back into period of low and stable inflation,’ Orr remarked during the rate decision press conference. He described the interest rate cut as a ‘reasonable first step for monetary easing’, adding that the bank was ‘in strong position to move calmly.’
The outlook for the economy in New Zealand is somewhat gloomy: the RBNZ forecasts a slip back into recession this year, followed by a gradual recovery from 2025. Given the danger of maintaining restrictive monetary policy in such an environment, Abhijit Surya, economist at Capital Economics, says:
‘Although the RBNZ seemed to strike a cautious tone about further policy easing, we think it will cut rates more aggressively than many are anticipating.’
Presently, forward guidance from the central bank suggests at least three more cuts by the middle of 2025, having previously indicated it would not start cutting interest rates until the middle of 2025.
Pound (GBP) trades mixed as UK inflation misses forecasts
The pound (GBP) continues to trade higher against several peers this morning, but tumbles in a minority of exchange rates as traders digest the implications of a lower-than-forecast inflation reading.
Headline inflation for the year to July was expected to print at 2.3%, but instead came in at 2.2%, from 2% in June. Core inflation also missed forecasts on both an annualised and a monthly basis, driven by slower growth of price pressures in the service sector.
Average wage growth was shown to have eased yesterday – a key factor driving service-sector inflation. Until this point, inflation in the service sector has proved sticky, posing a conundrum for the BoE; however, restaurants and hotels reported easing price growth in July following a surge in prices the previous month.
Following today’s release, the Bank of England (BoE) will face reduced pressure to maintain restrictive monetary policy in order to bring inflation lower. Forecasts for hawkish rate-holds ahead from the UK’s central bank are likely to diminish, as Luke Bartholomew, deputy chief economist at Abrdn, remarks:
‘After yesterday’s solid labour market report, the Bank will not be in any hurry to cut rates again immediately, but the ongoing slowing in inflation pressure means there is certainly scope for at least one more rate cut this year.’
GBP/NZD forecast: full data calendar to drive exchange rate movement?
The pound New Zealand dollar exchange rate could trade in a wide range tomorrow as a clutch of data from both Australia and China may influence the ‘kiwi’. If the Australian economy added more jobs as forecast, the Australian dollar (AUD) might climb, sparking an uptrend in the positively correlated NZD.
Subsequently, retail sales in China are expected to have increased in July. Upbeat Chinese data invariably spells tailwinds for the Antipodean currencies given the close trading relationship between China, Australia and New Zealand. On the other hand, a slowing of industrial production and an increase in Chinese unemployment could weigh upon the country’s economy, sapping support for the ‘kiwi’.
In the UK, a lack of economic expansion in June could contribute toward Sterling headwinds; if GDP growth eased in Q2 from 0.7% to 0.6% according to preliminary data, the pound may weaken.