Pound New Zealand dollar (GBP/NZD) exchange rate surges following RBNZ’s bumper rate cut

Pound New Zealand dollar exchange rate rallies to two-month high

The pound New Zealand dollar (GBP/NZD) exchange rate is advancing this morning, after the Reserve Bank of New Zealand (RBNZ) delivered its latest interest rate decision.

At the time of writing the GBP/NZD exchange rate is trading at around NZ$2.1500. Up roughly 0.7% from this morning’s opening levels.

New Zealand dollar (NZD) slides on half-point rate cut

The New Zealand dollar (NZD) was met by sharp losses in overnight trade as the RBNZ concluded its latest policy meeting with the announcement of a bumper 50 basis point interest rate cut.

Justifying the aggressive rate cut, the bank noted inflation is with its 1%-3% target range and capacity in the economy is rising.

The RBNZ’s policy statement read:

‘The New Zealand economy is now in a position of excess capacity, encouraging price- and wage-setting to adjust to a low-inflation economy.

‘The Committee agreed that it is appropriate to cut the OCR by 50 basis points to achieve and maintain low and stable inflation, while seeking to avoid unnecessary instability in output, employment, interest rates, and the exchange rate.’

While the 50bps rate cut was widely expected, the ‘kiwi’ nosedived as the minutes from the bank hinted at further bumper cuts.

The minutes reported that ‘current short-term market pricing’ is consistent with the bank’s decision. Markets have priced in 89bps of easing by the end of the year, which would imply the RBNZ will deliver another 50bps cut in November.

Disappointment that China hasn’t been forthcoming with additional fiscal stimulus measures then further compounded the New Zealand dollar’s losses.

Pound (GBP) underpinned by budget hopes

The pound (GBP) is supported this morning by reports that Chancellor Rachel Reeves is planning to adjust the government’s debt rules.

This will allow the Chancellor to borrow more and spend billions more on infrastructure investment in her upcoming Autumn Budget.

This comes as a relief to GBP investors. Many of whom were worried about tax hikes and spending cuts as the government seeks to plug a £22bn fiscal ‘black hole’.

Pound New Zealand dollar exchange rate forecast: Rebound in UK GDP to lift Sterling

Looking ahead in the second half of the week, the pound New Zealand dollar exchange rate may extend its gains with the publication of the UK’s latest GDP figures.

The UK economy is expected to have returned to growth in August after stalling in both June and July. This may ease concerns the UK’s remarkable growth in the first half of the year is already starting to fade.

In the meantime, movement in the New Zealand dollar is likely to be tied to market risk dynamics. Could a pull back in the US dollar (USD) following the publication of the latest US inflation figures provide some support for the ‘kiwi’?

Matthew Andrews

Contact Matthew Andrews


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