- Pound New Zealand Dollar Exchange Rate Dropped due to NZ Dairy Auction – Practically unchanged milk prices kept NZD afloat.
- New Zealand Dollar Plagued by RBNZ Rate Cut Hype – Markets show an 80% chance of a 0.25% cut at the next policy meeting.
- Pound Rallies as Pre-Brexit Job Data prints Unexpectedly Well – Unemployment at lowest levels since 2005.
- GBP/NZD Expected to Rally on RBNZ Announcement later Tonight.
The Pound New Zealand Dollar exchange rate slid gracefully over the course of yesterday’s session thanks to the New Zealand dairy auction coming to a close with prices practically unchanged.
The Pound felt further downward pressure yesterday as the IMF downgraded both the UK’s and global growth outlook considerably following the June 23rd EU membership referendum in which Britain voted to leave the union.
Continued expectations for the Bank of England (BoE) to enact monetary stimulus at next month’s rates decision has gutted Pound demand for now and the currency is unlikely to find favour any time soon without exceptional circumstances. However, recent employment statistics have printed better-than-expected and this has given the Pound a little shunt northwards.
Currently, the Pound New Zealand Dollar exchange rate trades at 1.8666 after seeing a 0.36% rise this morning.
Pound (GBP) finds Favour from Optimistic pre-Brexit Employment Reports
The Pound has been on a downtrend for much of the week so far after an initial boost on Monday thanks to hawkish hints from central banker Martin Weale.
Weale, a Bank of England Monetary Policy Committee Member, stated the central bank should wait for more concrete data to be released from the post-Brexit period before hastily enacting further monetary stimulus measures.
The Bank surprised traders last week as it deigned to hold rates at the current record lows. Unsurprisingly, this gave the Pound a substantial increase in demand but GBP was soon stifled due to the likelihood of the BoE cutting rates at the next meeting in August.
Sterling saw significant drops yesterday on the back of the International Monetary Fund’s downgrading of the UK’s economic growth outlook. Previously the IMF expected the economy to grow by 2.2% but have slashed the figure to 1.3% in a move that most analysts expect reflects the consequences of the UK’s vote to Brexit.
Further pressure was enacted on the currency due to the massive spending implications of renewing the UK’s nuclear deterrent Trident after MPs voted in favour of the £31 billion overhaul.
Today has seen the Pound fare rather well in reaction to the forecast busting employment figures showing UK unemployment falling to levels last seen in 2005.
‘Kiwi’ (NZD) Hamstrung By Increasing RBNZ Cut Expectations
Previously buoyed by yesterday’s dairy auction where New Zealand’s biggest export managed to dodge a substantial drop in price, today the New Zealand Dollar has seen downside pressure due to the increasing chance the Reserve Bank of New Zealand (RBNZ) will elect to cut rates at next month’s policy meeting.
Markets have priced in an 80% chance of a 0.25% rate cut at the Reserve Bank of New Zealand’s next policy meeting after a host of new proposals have been put forward to attempt to corral the ongoing housing market issues that New Zealand is experiencing.
If tonight’s RBNZ economic update exudes a particularly dovish sentiment, the recent series of depreciations for the ‘Kiwi’ are likely to continue as rate cut expectations have reached a fever pitch. The New Zealand government and Reserve Bank of Australia have attempted to stem the increasing systemic risk within the NZ economy as Auckland’s booming housing market threatens to engulf the entire country.
However, some believe the reforms to be hastily enacted with little thought, such as Annette Beacher, a chief strategist from TD Securities who has been quoted as saying:
‘Recent market volatility would not be welcomed by the Bank, since one of its Policy Target Agreement (PTA) mandates is to “seek to avoid unnecessary instability in output, interest rates and the exchange rate”. We suspect these recent clumsy attempts at enhancing forward guidance has unintentionally made their policy dilemma (hot housing vs overvalued exchange rate) even more problematic amongst such whippy price action in recent weeks’
Pound New Zealand Dollar Exchange Rate Expected to Rally on Dovish RBNZ Announcement
As mentioned before, tonight heralds the release of the Reserve Bank of New Zealand’s update on its economic assessment.
It is highly likely the New Zealand Dollar will experience a marked decline if the announcement appears overtly dovish. Conversely, the currency could find favour once again if the central bank surprises traders by refraining from any near-term stimulus.
Tomorrow’s NZD Credit Card Spending figures for June (year-on-year) hold potential for ‘Kiwi’ movement due to the sheer number of transactions being made by card in New Zealand. Over 75% of transactions occur electronically so the report holds significant insight into consumer spending habits. Any severe slowdown is likely to place downward pressure on the currency and vice versa.
From the UK, tomorrow’s retail sales releases for June should shed a significant amount of light on pre-Brexit consumer spending. If the figure prints low, it could be an early warning sign the July’s figure will be even more drastic and could likely see the Pound fall once again.
Government spending reports are also set for release but are unlikely to elicit much movement for Pound New Zealand Dollar exchange rate as they are from the post-Brexit period and all eyes are awaiting data from after the vote to gauge its economic impact.
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