New Zealand Dollar Seen "Range-trading" as Kiwi "Tenacity" Endures despite Lockdowns

The Pound-to-New Zealand Dollar rate has been volatile this month but is now tipped for a period of narrower range-trading as the Kiwi currency demonstrates a tenacity that's taken some analysts by surprise. 

The New Zealand Dollar lost ground against the Dollar, Pound and other major currencies after the Reserve Bank of New Zealand announced its first ever quantitative easing programme which came in as being larger than markets had expected.

The Pound-to-New Zealand Dollar rate could extremely volatile in the weeks and months ahead with a trading range of up to 25% between peak to trough possible, although the exact path trodden by the exchange rate will be determined by the relative pace of decline in the GBP/USD and NZD/USD rates. 

The New Zealand Dollar lost value against the Pound, Dollar and other major currencies on Monday, March 16 after the Reserve Bank of New Zealand surprised markets by cutting interest rates by a sizeable 75 basis points and signalled that it would soon engage in a programme of quantitative easing to try and limit the negative economic impact of the global coronavirus pandemic.

The New Zealand Dollar ruled the major currency roost Wednesday even as other risk assets like stocks and commodities crumbled again amid another flight to the safety of the bond market, which may have benefited the Kiwi given that it now offers some of the highest yields in the developed world.

The Pound-to-New Zealand Dollar rate has reached its highest level since before the Brexit referendum amid market panic over the global economic impact of coronavirus and it could now be on course for a return to May 2016 highs close to 2.20.

A sharp decline in the number of visitor arrivals to New Zealand should contribute to a fundamental backdrop that will likely add further downside pressures to the New Zealand Dollar say economists at Aussie and Kiwi lender Westpac.

Increasing expectations for interest rate cuts at the Reserve Bank of New Zealand could prove to be a source of downside pressure on the New Zealand Dollar, which is already the worst performing major currency of 2020.