The Pound New Zealand Dollar (GBP NZD) exchange rate has remained on good form this week as market demand for the ‘Kiwi’ diminished in the wake of New Zealand’s election stalemate. But what can we expect for GBP NZD following today’s rate decision from the Reserve Bank of New Zealand (RBNZ)?
GBP NZD Bolstered by New Zealand’s Election Stalemate
New Zealand’s National Party emerged from the General Election with the largest number of seats at 58, followed close behind by Labour at 45, New Zealand First with 9, Greens with 7 and ACT at 1 – resulting in no clear majority and thus a hung parliament.
As is always the case with a hung parliament, uncertainty has ensued, with businesses and investors left in the dark as to what exactly the policies of the eventual ruling coalition of parties will be.
This hesitation and ambiguity is a major component of the New Zealand Dollar’s current weakness, weakness that is likely to continue until at least October. Indeed, Winston Peters, leader of the New Zealand First Party and kingmaker in this equation has since stated that no decisions will be made regarding coalition partners until the 7th of October, when the final voter tally is counted.
This has left a significant gap for investors to mull over, prompting foreign investors to hold off on large business decisions and initially sending the ‘Kiwi’ tumbling.
As of this morning, however, the Pound lost some ground on news that tariffs have been levied by the US government on exports of the Bombardier C-series jet to airlines in the US.
New Zealand’s Rate Decision Imminent, GBP NZD Volatility Ahead
Another key event this week is the Reserve Bank of New Zealand (RBNZ) rate announcement, consisting of a policy decision and an accompanying rate statement at 21:00GMT this evening.
The RBNZ has kept the official cash rate steady at a record low of 1.75% since November 2016 and according to a Reuters poll, the vast majority of economists forecast that the RBNZ will keep things steady today.
Beyond this, acting RBNZ Governor Grant Spencer is expected to signal that there will be no change in the immediate future.
ASB Bank Chief Economist Nick Tuffley echoed this sentiment, claiming:
‘A short but balanced statement is expected, with only a few tweaks made to the August monetary policy statement message […] The RBNZ will want to provide continuity given the current election-impasse and with a new RBNZ Governor at the helm’.
Not everyone believes that the RBNZ will stay cautious for long, however, with some economists predicting that they will be inclined to begin lifting rates in February next year, joining in on the global narrative of stricter monetary policy (especially if the US Fed goes ahead with a December rate hike).
The sentiment that the bank presents regarding future monetary policy tightening, however, could see the ‘Kiwi’ Dollar clawing back some losses if it’s hawkish, or stumbling further into the abyss if it’s dovish, although a cautious outlook seems the more likely eventuality.
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