Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Rises as RBNZ Cuts Rates
The Pound Sterling New Zealand Dollar (GBP/NZD) exchange rate rallied by around 0.4%, leaving the pairing trading at around NZ$2.0336.
Coronavirus fears continued to rattle markets, as the number of cases and deaths worldwide rose.
Risk appetite was left under pressure after the US Federal Reserve unexpectedly cut rates for the second time this month.
The US central bank cut rates close to zero and launched a $700 billion stimulus programme to try and protect the economy from the effects of Covid-19.
In a news conference, Chair Jerome Powell stated the pandemic was having a ‘profound’ effect on the economy.
Added to this, the Reserve Bank of New Zealand (RBNZ) cut interest rates to a record low of 0.25% from 1%.
The RBNZ noted that the cut will take place from 17 March, and will remain at this level for at least 12 months.
RBNZ policymakers also agreed that further stimulus would be needed. The Monetary Policy Committee also added:
‘It was agreed that, since meeting in February, the outlook for the economy had deteriorated significantly as a result of the impacts of Covid-19.
‘The slowdown in the global economy would act as a serious headwind for the New Zealand economy. International and domestic initiatives to limit the spread of the virus would have a serious impact on travel and trade affecting both supply and demand channels in the economy.’
Sterling (GBP) Rallies despite Disappointing UK Manufacturing
The Pound was able to make significant gains against the New Zealand Dollar today as investors focused on the spread of coronavirus and the RBNZ slashed rates by 0.75 basis points.
Despite this, data revealed that Britain’s manufacturing sector had a disappointing start to the new year.
Industry surveys showed that the manufacturing sector weakened at the start of 2020 before the Covid-19 crisis escalated.
Made UK and BDO revealed that exports in the UK shrank for the first time since the end of 2016, although this did little to stop GBP rising against the ‘Kiwi’.
Added to this, Made UK now expects manufacturing output to fall by -2.1% in 2020, down from earlier estimates of a 0.3% increase. It also warned that the coronavirus outbreak may mean further cuts to production.
The data also emphasised the urgency for the UK and European Union to reach a trade agreement.
Commenting on this morning’s data, Make UK’s chief economist, Seamus Nevin stated:
‘Even before the current situation, the shocking drop in exports could not have come at a worse time ahead of potentially difficult trade talks where the clock is running down fast.
‘It is now vital that government works with industry to limit the damage to industry and takes whatever steps are necessary to safeguard skills in particular.’
Pound New Zealand Dollar Outlook: Will Weak Confidence Weigh on NZD?
Looking ahead, the Pound (GBP) could continue to edge higher against the New Zealand Dollar (NZD) following the release of UK labour market statistics.
If unemployment remains at the current lows while wage growth increases more than expected, Sterling will extend today’s gains.
Meanwhile, the ‘Kiwi’ could edge lower following the release of Westpac’s consumer confidence data.
If Q1 confidence slumps further than expected, the Pound New Zealand Dollar (GBP/NZD) will extend losses.