The Pound New Zealand Dollar exchange rate is currently bullish after a dovish press conference with the RBNZ Governor.
Pound New Zealand Exchange Rate Firms as Investors Look for Safe Assets
The Pound may not be a traditional safe-haven asset, but it is seeing strong advances today on the back of investor demand for stability. Commodity appetite has been dented by the latest Reserve Bank of New Zealand (RBNZ) decision, while the traditional safe-havens are struggling on political concerns.
This is leaving the Pound as – somewhat surprisingly – a safe bet today. Because the vote for Brexit is well behind the country and the Article 50 bill looks likely to be passed without amendments, meaning a ‘Hard Brexit’ is on the way, many of the potential near-term shocks for Sterling are already spent.
‘Kiwi’ weakness is helping exacerbate Pound New Zealand Dollar exchange rate gains, of course.
Weak New Zealand Policy Outlook to Allow GBP NZD Exchange Rate Gains
The Reserve Bank of New Zealand announced yesterday evening that the official cash rate (OCR) will remain at its historic low of 1.75% in the long-term. Governor Graeme Wheeler, speaking at the latest RBNZ press conference, stated that;
‘Longer-term inflation expectations remain well-anchored at around two percent. Monetary policy will remain accommodative for a considerable period.’
David de Garis, an Economist at NAB, had expected this outcome and believes that the outlook for monetary policy will stay loose for around two years. In a client note, he stated;
‘This morning’s RBNZ OCR (official cash rate) track has it steady not only through this year and next and not hiking until 2019.’
While the Pound is making strong gains on the back of risk-aversion in the currency markets, the weakening of the New Zealand Dollar has undoubtedly accelerated the advance.
But is a weak outlook on New Zealand monetary policy likely to enable the Pound New Zealand Dollar exchange rate to make longer-term gains?
BoE Policy Outlook More Hawkish than the RBNZ?
With Bank of England (BoE) policymaker Kristin Forbes recently having stated that a rate hike may be necessary if the UK economy keeps performing at its current level, the outlook for UK monetary policy has improved markedly.
While it is only one policymaker – and one noted for her hawkishness at that – the latest BoE meeting minutes claimed several board members believed there was a limit to how far above-target inflation could be ‘tolerated’. If the UK economy continues to defy the forecasts – which have a slowdown for GDP and consumer spending on the cards over the coming year – this will push expectations of monetary tightening up.
The RBNZ policy outlook, however, is likely to remain muted. Inflation is comfortably far from the top of the target range, so there is no suggestion policymakers need to worry about overheating price growth.
Overall, it seems the outlook for UK monetary policy is significantly better than that of New Zealand. Of course, things could change once Article 50 is activated and the Brexit process begins in earnest. However, the RBNZ cited political risks to the New Zealand economy, which is in some part a reference to the new US administration. So there are large headwinds facing both currencies.
In terms of monetary policy outlook alone, the Pound New Zealand exchange rate could see strong support if UK data continues to perform well.
Interbank Pound New Zealand Dollar Exchange Rates
At the time of writing, the GBP NZD exchange rate was trading in the region of 1.73, while the NZD GBP exchange rate was trending around 0.57.
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