Anticipation for key upcoming central bank news is keeping the British Pound to New Zealand Dollar (GBP/NZD) exchange rate sturdy this week. While markets are cooling from the jump in safe haven demand seen earlier in the week, the New Zealand Dollar still lacks the drive to sustain much of a recovery. As a result, the Pound has been able to sustain gains against the ‘Kiwi’ with investors hesitant to move too much on either currency ahead of key news in the coming sessions.
Since opening this week at the level of 1.9781, GBP/NZD has once again seen a strong jump in gains. Yesterday, GBP/NZD touched on a high of 1.9980 – which was the best level for the pair in over a month.
While GBP/NZD trends a little lower today, the pair has still sustained most of the week’s impressive gains and trends in the region of 1.9947 at the time of writing.
Pound Sterling (GBP) Exchange Rates Steady Ahead of Anticipated Bank of England (BoE) Decision
The Pound saw weak performances against many major rivals earlier in the week, and is steadying today. Investors are hesitant to move too much on the British currency ahead of tomorrow’s anticipated Bank of England (BoE) policy decision.
However, as the Pound gained against a broadly weak New Zealand Dollar, today’s sturdier Pound movement is largely helping it to hold its ground and most of the gains it has seen this week so far.
It follows weakness earlier in the week, in which lingering Bank of England (BoE) interest rate cut bets as well as returning uncertainty over the future relationship between Britain and the EU weighed on Sterling.
Markets are still pricing in around a 50% chance of a UK interest rate cut from the BoE tomorrow. While some analysts believe the chances are slightly lower, investors are overall hesitant to move on the Pound with such an uncertain BoE decision imminent.
According to Matthew Cady, Strategist at Brooks Macdonald:
‘With interest rates at just 0.75%, there is a real risk of leaving any rate cut too late. Should the UK economic picture weaken in the coming months, the Bank would potentially have to consider much deeper cuts to its policy rate, requiring room that it arguably doesn’t have,
This asymmetry in policy risk raises the risk of any wait and see approach by the Bank.’
New Zealand Dollar (NZD) Exchange Rates Struggle to Recover from Risk-Off Movement
For most of the week so far, investors have been selling currencies correlated to risk and trade like the New Zealand Dollar.
Over the weekend, a coronavirus outbreak spreading in China appeared to accelerate. It worsened market concerns that the virus could have a negative impact on the global economic outlook in the coming quarters.
Due to the New Zealand Dollar’s correlation to risk-sentiment, concerns about a potential impact on global growth weighed heavily on the New Zealand Dollar.
While recent New Zealand data has been generally strong and has boosted New Zealand’s domestic outlook, global coronavirus jitters overshadowed hopes about New Zealand’s economy and left the ‘Kiwi’ highly unappealing.
For now, the New Zealand Dollar has stopped falling as markets calm slightly, but it is not recovering and analysts speculate that there could be further concerns ahead in the coronavirus issue.
According to Martin Rudings, Adviser at OMF:
‘The market’s at a place where it’s happy to consolidate,
The market is definitely looking for such signs. I still think the worst is yet to come in terms of the death toll and the number of cases,’
GBP/NZD Exchange Rate Forecast: Bank of England (BoE) Decision in Focus
The Pound to New Zealand Dollar exchange rate could see more notable movement towards the end of the week, due to major central bank news and upcoming data.
As a currency correlated to risk and economic sentiment, the New Zealand Dollar could be influenced if tonight’s Federal Reserve policy decision surprises investors.
A more dovish Fed would make the New Zealand Dollar more appealing due to the higher yields of the New Zealand Dollar.
New Zealand’s December trade balance results will also be published overnight. If these beat expectations they could bolster market confidence in the resilience of New Zealand trade, which would boost NZD support as well.
However, tomorrow’s biggest event is likely to be the Bank of England’s (BoE) highly anticipated January policy decision.
If the BoE cuts UK interest rates or takes a more dovish tone this could be dovish surprise to investors, which could lead to significant losses in the Pound.
On the other hand, the Pound to New Zealand Dollar exchange rate could see even stronger gains towards the end of the week if the Bank of England surprises investors with a more hawkish than expected tone on Britain’s economic outlook.
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TAGS: Pound New Zealand Dollar Forecasts