May 25, 2022 – Written by John Cameron
GBP/NZD Plunges as RBNZ Hikes Interest Rates
The Pound New Zealand Dollar (GBP/NZD) exchange rate is falling today after the Reserve Bank of New Zealand (RBNZ) hiked interest rates. Meanwhile, the Pound (GBP) is under pressure following publication of Sue Gray’s ‘Partygate’ report.
At the time of writing, the GBP/NZD exchange rate is trading at approximately $ 1.93.
New Zealand Dollar (NZD) Climbs after RBNZ Delivers Another Aggressive Rate Hike
The New Zealand Dollar (NZD) is gaining ground against the majority of its peers today after the RBNZ hiked interest rates by 50-basis points to 2%, their highest level since 2016.
The bank’s forward guidance signalled that further interest rate hikes are likely to occur throughout the year as the bank seeks to bring inflation back under control.
At present, the central bank has forecast inflation could reach 7% in June; this is significantly higher than the RBNZ’s target range of 2-3%.
In a statement, the RBNZ said:
‘A larger and earlier increase in the (official cash rate) reduces the risk of inflation becoming persistent, while also providing more policy flexibility ahead in light of the highly uncertain global economic environment.’
As the RBNZ delivered a more hawkish tone than analysts predicted, it caused NZD investors to reprice their rate hike expectations and propel the ‘Kiwi’ sharply higher.
Ben Udy, Australia and New Zealand economist and Capital Economics, stated:
‘We have been forecasting a more aggressive hiking cycle than the RBNZ throughout this year. But the Bank’s hawkish tone and more aggressive rate hike forecasts suggest that our forecasts are now too dovish.’
Following the RBNZ’s hawkish forward guidance, analysts are pricing in two more 50bps rate hikes in July and August.
Pound (GBP) Wavers Following ‘Partygate’ Report
The Pound is falling against the New Zealand Dollar today following the publication of Sue Gray’s ‘partygate’ report into the breaking of lockdown rules in Downing Street in 2020 and 2021.
The report has highlighted the ‘serious failure’ of government officials’ ability to abide by the ‘standards expected of the entire British population’.
The report states:
‘Many will be dismayed that behaviour of this kind took place on this scale at the heart of Government. The public have a right to expect the very highest standards of behaviour in such places and clearly what happened fell well short of this.’
At Prime Minister Questions this afternoon, Boris Johnson is expected to tell Commons that lessons have been learnt since the report was commissioned and to accept full responsibility for wrong doings.
However early reaction to the report suggests it might not be as damning for Boris Johnson as first believed, which may go some way to explaining this afternoon’s rebound in the GBP/NZD exchange rate.
GBP/NZD Exchange Rate Forecast: Will Sunak’s Cost-of-Living Support Plan Reflect Positively on Sterling?
Looking ahead, the Pound New Zealand Dollar exchange rate may be influenced by an expected government announcement on plans to tackle the UK’s cost of living crisis.
The UK Chancellor of the Exchequer, Rishi Sunak, is expected to unveil new financial support measures – as soon as Thursday – to support those in need. Will these measures be enough to aid the UK economic recovery and boost GBP exchange rate?
On the other hand, an absence of economic data for New Zealand will leave NZD exchange rates exposed to external factors.
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TAGS: Pound New Zealand Dollar Forecasts