- GBP/NZD well supported
- But lacking upside momentum
- Central bank deluge from UK and NZ awaits
- NZD/USD breaks 0.72 but struggles to move higher
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- GBP/NZD spot rate at time of writing: 1.9223
- Bank transfer rate (indicative guide): 1.8550-1.8686
- FX specialist providers (indicative guide): 1.8620-1.9089
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The Pound has come under pressure against the New Zealand Dollar this week, although Sterling could be likely to remain well supported around the nearby N$1.91 level in response to any further weakness.
Commodity currencies including the Kiwi, Aussie and Canadian Dollars have been in rude health this week alongside the oil-linked Norwegian Krone, while the U.S. Dollar has continued to unravel against all major currencies except the Japanese Yen.
Pound Sterling has lagged all of these higher yielding currencies, leading the Pound-to-New Zealand Dollar exchange rate (GBP/NZD) to decline, although for the 1.91 level to give way NZD/USD would have to lift meaningfully above 0.72.
Alternatively, GBP/USD would have to slip some way below 1.38 in possibly-unlikely price action that would need to be specific to either currency.
There’s nothing of importance in the UK calendar until the May 06 Bank of England (BoE) monetary policy decision, while there’s plenty of Kiwi economic data due out before and after then.
“NZD/GBP couldn’t hold the break through resistance at 0.52 [GBP/NZD: 1.9260]. It’s unlikely to drift too far though,” says David Croy, a strategist at ANZ.
The GBP/NZD rate has been reined-in during recent weeks in part by NZD/USD’s resurgence.
Above: Pound-to-New Zealand Dollar rate shown at daily intervals with NZD/USD.
The Kiwi Dollar’s recovery is a headwind for Sterling but with the British currency also benefiting alongside European counterparts from reduced investor pessimism toward the old continent and waning appetite for the greenback; downside in GBP/NZD may be just as limited as the upside over the coming weeks.
The Kiwi has recovered from March losses and reclaimed the 0.72 handle against the U.S. Dollar but tried, and so far failed, to advance meaningfully beyond this point.
That's supportive of GBP/NZD, although any pick up in NZD/USD momentum above 0.72 would indicate trouble ahead for Sterling unless the main British exchange rate GBP/USD is able to keep pace with NZD/USD.
The GBP/NZD rate always closely reflects the net performance of the latter two exchange rates.
GBP/NZD Forecasts 2021
Period: Q2 2021 Onwards
FX for Businesses Guide
With NZD/USD having risen by 4.3% between March 25 and around the same point in April there hasn’t been a great deal of difference between NZD/USD’s performance and that of the main Sterling exchange rate GBP/USD, explaining the sideways chop between 1.9180 and 1.9350 seen by GBP/NZD over the last week.
To the extent that this price action continues, GBP/NZD would be found trading in a relatively narrow range over the coming weeks.
"Some of the NZD weakness on crosses in March was related to local developments. In particular, the New Zealand government on March 23 announced aggressive plans to cool the housing market," says Sean Callow, a strategist at Westpac.
Callow and the Westpac team cite last month’s effort by Wellington to slow house price growth as being responsible for investors having abandoned earlier tentative wagers that the Reserve Bank of New Zealand (RBNZ) might lift its interest rate as soon as the middle of next year.
Above: Pound-to-New Zealand Dollar rate shown at weekly intervals with NZD/USD.
It may also have mattered to the Kiwi however that last year’s economic rebound from coronavirus-containing ‘lockdown’ measures was weaker than economists anticipated, given its possible impact on expectations for RBNZ policy.
“We look for the RBNZ to keep the OCR at 0.25% at 0.25% until end-2022. It’s QE program is on track to be complete sometime in 2022,” Callow says.
Investors’ wagers on the likely timing of RBNZ interest rate rises could be a key influence on the New Zealand Dollar over the coming weeks and one of the factors that would put further pressure on GBP/NZD.
For these reasons economic data emerging from New Zealand will likely be scrutinised closely by the market over the coming quarters.
Data out in the month ahead includes first-quarter employment figures on May 05, the RBNZ’s inflation expectations report on May 07, New Zealand’s annual budget on May 21 and first quarter retail sales figures on May 23.
Those data points are followed by the RBNZ’s next interest rate decision on May 26, although before then the BoE will give its next assessment of the UK economy’s prospects on May 06, which would always command the attention of Sterling.
“Markets are awash with fears of resurgent inflation and aren’t really buying into the global central bank “patience” rhetoric,” ANZ’s Croy says.