The outlook for the Pound New Zealand Dollar (GBP NZD) exchange rate has grown increasingly positive on the back of post-election turbulence in New Zealand and anticipation of a rate hike from the Bank of England (BoE) on Thursday.
RBNZ Policy Mandate Reform Hurting NZD Exchange Rates
New Zealand Dollar (NZD) exchange rates are still struggling as markets digest the appointment of a Labour-led coalition following New Zealand’s general election, with new comments from Finance Minister Grant Robertson only adding to the political uncertainty.
Robertson announced on TVNZ’s Q&A on Sunday that the Reserve Bank could consider ‘other goals in the economy such as making sure that we maximise employment,’ when making decisions regarding monetary policy – suggesting that the new mandate from the Reserve Bank of New Zealand (RBNZ) could be more tolerant of inflation.
Beyond this, today’s ANZ business confidence index in New Zealand demonstrated a decline to -10.1 in October, down from the previous period’s 0.0 in September.
This is the lowest level recorded for this index and the first negative reading shown since September 2015, with a weaker housing market and election-driven business uncertainty crippling the reading.
This has limited the outlook of the ‘Kiwi’ Dollar, with markets hesitant to invest in a currency that remains massively influenced by such an uncertain political landscape.
Pound (GBP) Exchange Rate Outlook Positive on BoE Rate Hike Prospects
The near-term outlook for the Pound remains positive, with markets almost entirely pricing in a rate hike from the BoE on ‘Super Thursday’.
The change expected, however, is minimal – only enough to revert the bank’s post-Brexit rate cut by raising interest rates 25 basis points (putting the baseline rate at 0.5%).
Beyond this, markets remain uncertain about what sentiment will be revealed in the accompanying statement, with some economists positing that the rate hike could simply be a one off, followed by a period of extreme caution.
It should be noted, however, that the risks attached to not raising interest rates go beyond the danger of not addressing the UK’s soaring inflation, as to skirt away from a rate hike now after so many hawkish calls would be deemed unreliable forward guidance on the bank’s part.
There are very few data releases pertinent to the UK in the build-up to Thursday, but markets will nonetheless be keeping an eye on Wednesday’s Markit manufacturing PMI and Thursday’s Markit construction PMI.
It remains unlikely however that these readings will have much of an effect on rate hike prospects for the BoE, even if they prove incredibly disappointing.
GBP NZD Volatility Ahead on NZ Employment Figures
New Zealand’s employment figures are also due for release later today, with quarter-on-quarter employment change in Q3 expected to be up to 0.5% from Q2’s -0.2% contraction.
The overall unemployment rate is also forecast to be positive, shrinking slightly from 4.8% to 4.7%.
Such results could help the New Zealand Dollar recover some of its losses against the Pound ahead of Thursday’s interest rate decision.
Comments are closed.