The Pound New Zealand Dollar (GBP NZD) exchange rate has remained predominantly in the Pound’s favour in recent weeks, with market apprehensions regarding New Zealand’s new coalition leadership limiting the upward potential of the ‘Kiwi’ Dollar (the NZD has weakened some 4.5% against a basket of most traded currencies since the election).
As the government reveals proposals relating to the foreign ownership of new property and potential employment reform, uncertainties continue to reign, but is the market sentiment correct? Or are markets perhaps undervaluing the ‘Kiwi’? We take a look at some of the policies of the new government to explore the question below.
How NZ Employment Reform and Foreign Ownership Proposals Could Affect GBP NZD
The primary policies weighing on the New Zealand Dollar are those that relate to foreign investment, immigration, trade and anything concerning the Reserve Bank of New Zealand (RBNZ).
The first amongst these to materialise is a move from the Labour-led government to ban foreign investors from buying residential property within the country – an attempt to steady surging house prices.
This decision met with some criticism, with markets increasingly concerned that the move might compromise the various trade agreements that New Zealand has in place, as well as agreements that are currently in the process of negotiation.
Nonetheless, Ardern insists it is her goal to make it easier for New Zealand nationals to purchase property.
‘We are determined to make it easier for Kiwis to buy their first home,’ she stated, referring to the policy, ‘so we are stopping foreign speculators buying houses and driving up prices. Kiwis should not be outbid by this’.
In addition to the concerns regarding the property market are concerns about possible employment reform, with the bank’s new Finance Minister, Grant Robertson claiming recently that the government’s broad objective is reducing unemployment below 4%. Robertson has also asserted that they want the RBNZ to play a role in this process.
The market response to this news was predominantly negative, as it could mean that the bank has to become flexible on monetary policy – something that might result in interest rate cuts in order to help facilitate the desired employment objective.
Whilst this possibility is still up in the air, the markets remain anxious, with any downward deviation from the RBNZ’s 1.75% interest rate seen as bad news for the ‘Kiwi’ Dollar.
Services PMI Beats Expectations – GBP Exchange Rates Bolstered
The outlook for the Pound was bolstered today on a positive UK services PMI, with a reading of 55.6 in October beating September’s 53.6 and the market forecast of 53.3.
This marked the fastest expansion that the sector has seen in some seven months, with new order growth massively rebounding on the back of improved domestic demand and various successful product launches.
Whilst yesterday’s rate decision from the Bank of England (BoE) saw the Pound fall almost 2% against the ‘Kiwi’ Dollar, the Pound has since clawed its way back into the lead, with data like the UK services PMI assisting.
Ultimately, the GBP NZD exchange rate forecast remains predominantly in the Pound’s favour, with the aforementioned volatility in NZ politics liable to continue causing problems for the ‘Kiwi’ Dollar.
It should be noted, however, that the Pound remains a slave to Brexit-related soundbites, even if progress has been made in negotiations.
In this sense, a lot hinges on the UK’s ability to finalise important elements of its exit from the EU, with any delays liable to continue hurting GBP NZD and perceived steps forward liable to bolster it.
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