As the Reserve Bank of New Zealand (RBNZ) proved less dovish than anticipated at its November policy meeting the Pound New Zealand Dollar exchange rate remained under pressure.
Markets were surprised that the central bank adopted a more relaxed attitude over the current valuation of the ‘Kiwi’, suggesting that the risk of monetary loosening has diminished further.
All in all the message appeared to herald a shift towards greater hawkishness, raising the prospect of the RBNZ raising interest rates sooner rather than later.
As Stephen Toplis, Head of Research at BNZ, noted:
‘We still believe inflationary pressures will prove higher than anticipated and that the Bank will end up raising interest rates in the second half of 2018 but, equally, we can understand that given the degree of uncertainty that prevails the Bank is not likely to formally suggest such a move any time soon. We would, however, expect each statement from here on in to get progressively more aggressive.’
Even so, the persistent sense of uncertainty that surrounds the domestic outlook thanks to the new centre-left coalition government still limited the upside potential of the New Zealand Dollar at this juncture.
If tonight’s New Zealand retail card spending figures prove encouraging, though, the GBP NZD exchange rate could see further losses.
Political Upheaval Limits Pound Sterling Strength
The resignation of International Business Secretary Priti Patel did little to ease the pressure on Theresa May, with the balance of her cabinet still looking decidedly precarious.
Weakening confidence in the abilities of the minority Conservative government creates fresh worries on the subject of Brexit, as any real sort of clarity on the matter still looks to be a distant prospect.
This raises the risk of companies implementing their worst-case contingency plans in the coming months, in order to insulate themselves from the risk of a hard exit from the EU.
Altogether this does not bode well for the growth outlook, increasing the downside risks to the gross domestic product.
A weaker-than-expected RICS house price balance also weighed on the GBP NZD exchange rate on Thursday, as the survey ran counter to more upbeat reports from Halifax and Nationwide.
However, the Pound could find a rallying point ahead of the weekend if the NIESR gross domestic product estimate for the three months to October proves positive.
As long as growth shows signs of continuing to recover from the weakness seen in the first half of the year confidence in Sterling is likely to improve.
If GDP is seen to lose some of its regained momentum, though, the GBP NZD exchange rate could shed further ground.
Current GBP NZD Interbank Exchange Rates
At the time of writing, the Pound New Zealand Dollar exchange rate was trending lower in the region of 1.8824. Meanwhile, the New Zealand Dollar Pound exchange rate was making gains around 0.5310.