The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate could experience some major fluctuations in the week ahead with UK data and the Reserve Bank of New Zealand’s (RBNZ) interest rate decision to come.
RBNZ Rate Cut Speculation Weighs on New Zealand Dollar (NZD) Exchange Rate
The RBNZ could make a cut to New Zealand’s official cash rate next Wednesday (Thursday’s Australasian session), and could be an event to cause significant New Zealand Dollar (NZD) exchange rate movement.
Commonwealth Bank of Australia (CBA) suggests: ‘The balance of risks around New Zealand’s economic (and inflation) outlook suggests the RBNZ can (and will almost certainly) cut rates. All eyes are now on RBNZ Governor, Graeme Wheeler. We have long advocated RBNZ rate cuts, as inflation continues to surprise on the down side and international developments allow for caution.’
Commonwealth Bank of Australia (CBA) Forecasts Rate Cuts of up to 1.00%
Last year, the Reserve Bank of New Zealand tightened rates aggressively as the economy performed well. When the RBNZ paused its rate hike cycle it vowed to pick up its tightening policy again in the near future. But alas, the economy didn’t progress enough to create another opportunity for higher interest rates. The Kiwi official cash rate currently boasts a higher yielding 3.50% in comparison to Australia (2.00%), the UK (0.50%) and Canada (0.75%).
CBA continued: ‘We are of the view the RBNZ will cut 50bps in this cycle, but may be forced to cut 100bps if conditions deteriorate. The main resistance to rate cuts has come from the strength, and financial stability threats, emanating from the heated Auckland housing market. The RBNZ is dealing with the housing related threats via macro-prudential policy. Monetary policy can now be used to offer support elsewhere in the economy, and guard against a disinflationary mindset.
UK Trade Balance, GDP Estimates Ahead – Pound Sterling (GBP) Sensitive
Meanwhile, the Pound will experience a rather quiet week by way of domestic data with only a few pieces worth noting. Tuesday will start the week with the BRC Like-for-Like Sales ecostat which will be mildly influential for the Pound (GBP), followed later in the day by UK Trade Balance numbers.
Wednesday will continue the data stream with UK Industrial Production, Manufacturing Production and the NIESR Gross Domestic Product (GDP) Estimate. All three pieces could cause some major Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate movement.
Friday will close the week with UK Construction Output stats and is another one that’s forecast to cause notable Pound (GBP) exchange rate movement.
Thursday’s (Friday Australasian time) New Zealand Business Performance of Manufacturing Index could also offer the ‘Kiwi’ some moderate fluctuations. Any upbeat economic data could spur the New Zealand Dollar (NZD) higher if the RBNZ keep rates on hold.
If the RBNZ do cut rates, the ‘Kiwi’ (NZD) exchange rate is likely to drop massively.
On Friday, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was trending in the region of 2.1626.