Pound to New Zealand Dollar Exchange Rate Surges on Expectations of Strong US Economy
While this week’s New Zealand economic calendar has been relatively quiet the New Zealand Dollar (NZD) has seen significant losses and the Pound to New Zealand Dollar (GBP/NZD) exchange rate has hit multi-month-highs.
Despite a lack of strong UK data or domestic New Zealand news driving the pair, GBP/NZD has surged from 1.9429 to near a high of 1.9751 this week. This was the pair’s best level since December 2017.
At the time of writing, GBP/NZD was trending closer to the level of 1.9700. Still, the pair is on track to sustain over two cents this week if Friday’s UK data does not disappoint.
The primary reason for the New Zealand Dollar’s weakness this week has been risk-aversion, as US 10-year Treasury bond yields have hit the major level of 3% for the first time in over four years.
This left markets more convinced that the US economy was strengthening and that US interest rates were going to rise significantly in the mid to long-term. The risky New Zealand Dollar has been sold off as a result.
Pound (GBP) Exchange Rate Investors Highly Anticipate UK Growth Results
The Pound (GBP) has put in major gains against the New Zealand Dollar so far this week, but this has been more due to New Zealand Dollar weakness than Pound strength.
Recent UK data has been underwhelming. In the past two weeks, disappointing UK inflation data and cautious comments from Bank of England (BoE) Governor Mark Carney have caused BoE interest rate hike bets to plummet.
However, analysts have remained optimistic that the Bank of England could still hike UK interest rates in May – depending on Friday’s anticipated UK growth report.
Friday will see the publication of Britain’s Q1 2018 growth projections. Solid growth data would leave markets more confident that the UK economy will be able to sustain higher interest rates from the BoE soon.
Essentially, investors are cautious on Pound trade ahead of the growth projections.
New Zealand Dollar (NZD) Exchange Rates Struggles to Find Support
As recent New Zealand inflation data has indicated that price pressures in New Zealand remain subdued, investors are doubtful that the Reserve Bank of New Zealand (RBNZ) will move away from its cautious tone on monetary policy any time soon.
On top of this, currencies that the New Zealand Dollar had benefitted from during the US trade protectionism panic have been recovering as trade jitters have faded. This has kept additional pressure on NZD.
This week’s NZ data has been generally uninspiring and has not influenced any notable movement in the New Zealand Dollar.
Monday saw the publication of New Zealand’s March visitor arrivals results, which improved from 11.4% to 13%.
Pound to New Zealand Dollar Forecast: UK Growth to Inspire GBP/NZD Outlook
The Pound to New Zealand Dollar (GBP/NZD) exchange rate outlook could see a shift in direction on Friday – but might not. It depends largely on the results of Britain’s anticipated Q1 Gross Domestic Product (GDP) projections.
UK growth is projected to have slowed slightly from 0.4% to 0.3% quarter-on-quarter, and have remained at 1.4% year-on-year.
If UK growth is solid or beats expectations, investors may become more confident in the chances of a May interest rate hike from the Bank of England (BoE).
However, a disappointing UK growth report would weigh heavily on BoE bets and could even cause the Pound to shed much of this week’s gains against the New Zealand Dollar.
Notably, BoE Governor Mark Carney will be holding a speech on Friday afternoon which could cause some late-week GBP/NZD movement.
As for the New Zealand Dollar, it could be influenced by Friday’s NZ trade balance results from March. It’s more likely though that the risky NZD will continue to be driven by risk-sentiment and the strong US economic outlook.
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