With economic reports from New Zealand in short supply this week, the direction taken by the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate will be dictated by UK news.
While movement in the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was limited in the run up to Christmas, the New Zealand Dollar approached parity with its Australian relation as commodity prices and the diverging policy outlooks of the Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ) took a toll.
As National Australia Bank (NAB) economist Ivan Colhoun observed; ‘If I was a New Zealand business, I would be looking to try and acquire some Australian businesses and use the power of the strong New Zealand Dollar.’
The currency market is likely to be subject to heightened volatility over the course of the coming week as traders scramble to make up for lost time after relaxing over the holiday period. For those trading with the Pound, the Bank of England (BoE) interest rate decision may be the week’s main development.
Pound Sterling (GBP) Exchange Rate Forecast to Soften
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate is currently trending in the region of 1.9785.
Despite the fact that commodities registered the biggest annual loss since 2008, a surge in gold and natural gas prices has caused the New Zealand Dollar to strengthen versus many of its major peers. The Pound, meanwhile, softened versus nearly all of its most traded rivals thanks to slower-than-forecast construction output. The British eco stats have boosted anxieties that the British economic recovery has lost momentum.
In general, the Pound is likely to soften over the course of next week. This is primarily due to the fact that traders will be wary of heavy investment prior to the Bank of England (BoE) interest rate decision. In the likely event that the BoE acts dovishly (or takes no action at all) the Pound will soften against its major peers.
Former BoE Governor Mervyn King reiterated the likelihood of conservative action by the institution with regards to borrowing costs, stating; ‘I don’t think we’ve really solved the problem of the imbalances between different economies in the world, and indeed within our own economies […]The idea that we can go on indefinitely with very low interest rates doesn’t make much sense [though raising them now] would probably lead to another downturn.’
Industry expert Bobby Micheal said of the upcoming gathering; ‘The recent fall in Sterling is likely to be included in the monetary policy committee discussions next week, and details of the same would of course be important for the UK currency. The Pound has dropped more than 1.5% on Friday alone to hit a new 17-month low of 1.5333 against the Dollar. UK data after the last BoE rate decision has been mixed, with some upside surprises in PMI surveys and wages data. But the big negative surprise in the 23 December GDP data might outweigh those factors, and authorities are likely to tilt more towards the doveish end.’
For those invested in Pound Sterling; UK Construction PMI, Industrial Production, Manufacturing Production, Balance of Trade and the NIESR GDP Estimate will all be of interest.
New Zealand Dollar (NZD) Exchange Rate Forecast to Fluctuate
Given that there is a distinct lack of influential data pertaining to New Zealand over the coming week, the ‘Kiwi’ (NZD) is likely to experience movement as a result of shifts in the commodities market. With commodities highly volatile at present, and with oil prices slumping significantly, the New Zealand Dollar is very likely to be subject to fluctuation.
Monthly Building Permits, which hit 8.8% previously, is unlikely to have a significant impact on ‘Kiwi’ movement.
On Sunday the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was trading in the region of 1.9938
