Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Edges Higher despite Credit Rating Downgrade
The Pound Sterling New Zealand Dollar (GBP/NZD) exchange rate edged up around 0.3%, leaving the pairing trading at around NZ$2.0686.
Sterling was able to edge higher against the New Zealand Dollar despite the coronavirus pandemic causing a credit rating downgrade.
The country’s economic outlook took a hit after ratings agency Fitch downgraded the UK’s sovereign debt rating on Friday.
The agency said the country’s debt levels would increase as the government increased its spending to tackle the coronavirus epidemic.
Economists have argued that this could see Britain facing its deepest recession in a century.
Commenting on this, Jane Foley, currency strategist at Rabobank in London noted:
‘The fundamentals suggest Sterling is vulnerable.
‘One of the interesting parts of the [Fitch] downgrade was pointing not just to the worsening of public finances but also the Brexit element, pointing to concerns about the UK’s trade agreement with the EU.’
New Zealand Dollar (NZD) Falls as Risk Appetite Hit by Coronavirus
The ‘Kiwi’ edged lower against the Pound despite the Reserve Bank of New Zealand (RBNZ) offering to repurchase corporate paper from banks which would allow them to continue lending.
However, this was soon offset by today’s rebound in the US Dollar as traders began to flock back to the safety of the US currency.
The RBNZ will hold an open market operations each Tuesday which will see it offer to buy up to $500 million.
The bank’s assistant governor Christian Hawkesby noted:
‘Our objective is to encourage banks to continue to fund their corporate clients by purchasing their debt securities, given the confidence that these securities can be funded by exchanging them with us for cash.’
The rebound in the US Dollar indicated risk appetite had been hit due to the United States becoming the new epicentre of the coronavirus.
This left the ‘Kiwi’ under pressure, and according to analysts from National Australia Bank:
‘Risk aversion is likely to stay elevated with the U.S. the epicentre of Covid-19.’
Pound New Zealand Dollar Outlook: UK Consumer Confidence in Focus
Looking ahead, the Pound (GBP) could suffer some losses against the New Zealand Dollar (NZD) following the release of UK consumer confidence data.
If GfK reveals that March’s confidence levels plummeted further than expected, Sterling will edge lower.
Meanwhile, the ‘Kiwi’ could suffer losses if trader continue to flock to the safety of the US Dollar (USD) as risk appetite declines further.
If traders continue to move away from riskier assets and back towards traditional safe-haven currencies, and UK confidence slumps, the Pound New Zealand Dollar (GBP/NZD) exchange rate will be left flat.