Pound to New Zealand Dollar Exchange Rate Slides despite Reserve Bank of New Zealand (RBNZ) Bets
Despite rising expectations for the Reserve Bank of New Zealand (RBNZ) to become even more dovish, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate has fallen back from its best levels today.
Still, GBP/NZD has sustained significant gains over the past week. GBP/NZD opened last week at the level of 1.8491, and after touching a 2019 low of 1.8372 the pair rebounded and spent the week climbing.
GBP/NZD touched on a high of 1.8717 before markets closed on Friday, which was the pair’s best level since mid-July.
GBP/NZD closed the week at the level of 1.8657 though, and trended a little lower near the level of 1.8620 at the time of writing.
Concerns that Britain’s government is heading for a no-deal Brexit are keeping Sterling (GBP) weak this week, but the New Zealand Dollar’s potential for gains is limited.
Pound (GBP) Exchange Rates Tumble as Government Seen Preparing for No-Deal Brexit
Analysts have perceived the Pound outlook as continuing to worsen since Britain’s new Boris Johnson government came into power. This is why last week’s brief Pound rebound was short-lived.
Sterling had been rising from its cheapest levels in profit-taking when the new government came into power, due to some relief that the long leadership contest had come to an end.
However, towards the end of the week the EU and Johnson government already started to see disagreement.
The EU said it would not renegotiate the Brexit withdrawal agreement, but the Johnson government insisted that it would not accept a Brexit deal that included the controversial Irish backstop.
Over the weekend, the government position on Brexit hardened further. Officials began to say that it was increasingly working on the assumption that a no-deal Brexit was on the way.
According to analysts from JPMorgan:
‘Layering Brexit concerns with downward momentum in the local economy and a concerning balance of payments setup should therefore allow GBP shorts to extend yet further.’
New Zealand Dollar (NZD) Exchange Rates Struggle to Capitalise on Pound Weakness
Investors sold the New Zealand Dollar en masse last week, as bets of another Reserve Bank of New Zealand (RBNZ) interest rate cut deepened.
The Reserve Bank of Australia (RBA) took a more dovish tone in recent comments and Federal Reserve interest rate cut bets softened.
These factors also pulled RBNZ interest rate cut bets higher, and led to broad NZD weakness throughout the week. As a result, GBP/NZD put in solid gains even despite Brexit jitters.
The New Zealand Dollar gained slightly against a weak Pound this morning, but the ‘Kiwi’ remained weak overall and lacked much in the way of support.
Investors were hesitant to much too much on the New Zealand Dollar ahead of upcoming New Zealand data, as well as this week’s Federal Reserve policy decision and next week’s RBNZ policy decision.
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Could Rise Further on Central Bank News
While the Pound to New Zealand Dollar (GBP/NZD) exchange rate is currently slipping from its highs, its losses are limited due to broad weakness in the New Zealand Dollar. If NZD becomes even less appealing, GBP/NZD could recover further.
No-deal Brexit fears are unlikely to go anywhere any time soon and will continue to keep gradual pressure on the Pound. However, the New Zealand Dollar may be in for more notable losses.
New Zealand confidence data due for publication later in the week could influence NZD movement, but only if they influence Central Bank speculation. Central Bank news will be the biggest focus for the ‘Kiwi’ outlook.
The Federal Reserve will hold its July policy decision on Wednesday and a less dovish than expected tone would leave currencies like the New Zealand Dollar even less appealing.
Investors may be hesitant to move too much on the Pound to New Zealand Dollar (GBP/NZD) exchange rate this week though, as the Reserve Bank of New Zealand (RBNZ) could take an even more dovish tone itself at next week’s August policy decision.