New Zealand Dollar Strength Forecast to Push Pound to 2.10, RBNZ Rate Cut Still Expected

The pound is at its lowest levels against the New Zealand dollar since May 2015 as global commodity prices improve sentiment towards the NZD, even as investors expect another RBNZ interest rate cut.

The pound to New Zealand dollar exchange rate (GBP/NZD) slumped by a whopping 3% at the start of the week as a major Brexit-inspired bout of selling hit the pound. In fact I am struggling to identify a larger one day loss than this over recent years. 

The move lower was particularly severe against the commodity dollars such as the New Zealand and Australian dollars who both saw buying interest return as commodity prices rebound. 

Higher oil and iron-ore prices lead commodities and investor risk appetite higher while, "The Russian oil minister said that discussions on a deal to cap oil production levels must be completed by the end of this month. This lingering ‘deal’ might keep short sellers out of action this week," notes Jason Wong at BNZ.

The decline in GBP comes as the latest turn in the EU referendum saga swings in favour of the 'Out' camp with the London Mayor Boris Johnson announcing late on Sunday that he is to campaign for a British exit of the European Union. Whether or not Johnson was the real cause behind the move remains debateable, what is for sure is that real GBP strength is unlikely until markets get the sense that the UK will stay within the EU.

On the technical front we had forecast that the pound was likely to continue weakening versus the New Zealand dollar regardless of the lurch:

What is notable is that the target at 2.10 could be reached in a far swifter and more decisive move.

What is also interesting is just how poorly the euro is doing, the EUR/NZD rate is down by nearly a percent indicating that perhaps moves in GBP/NZD are influencing the EUR/NZD. This is one to watch.

Gains against the US dollar are more mild, but the take-away is that the NZD is enjoying current conditions.

Latest Pound / New Zealand Dollar Exchange Rates

	Live: 2.3114▼ -0.06% 12 Month Best: 2.3553
*Your Bank's Retail Rate	2.2328 - 2.242
**Independent Specialist	2.279 - 2.2883 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

NZ Dollar Bought in the Face of Interest Rate Cut Expectations

The kiwi dollar is in demand even while markets continue to expect an interest rate cut at the Reserve Bankof New Zealand in coming months.

“It’s a simple story really,” says Wong who bases the prospect of another rate cut on a “strong NZD keeping monetary conditions tight amidst falling NZ commodity prices and inflation expectations, and a lack of conviction that inflation will recover as the RBNZ expects.”

Amidst signs of rapidly weakening inflation data and continually falling commodity prices – especially in the dairy sector which is New Zealand’s principle export - the pressure is increasing for the RBNZ to  lend a helping hand by cutting rates.

However, as expectations grow so does the need for the RBNZ to over-deliver, or any cut will prove as effective as the proverbial damp squib.

GBP Faces Further Weakness

"I think we are likely to see further sterling weakness ahead of the vote itself, as the debate rages and uncertainty undermines confidence. I can't imagine the opinion polls moving decisively enough in either direction for clarity to emerge before June 23," says Kit Juckes at Societe Generale.

In the process, Juckes expects to see GBP/USD break 1.40 and EUR/GBP break 0.80 between now and then - possibly both at the same time.

"On a ‘Brexit' I'd look for GBP/USD to trade to 1.30, at least," says Juckes. Make no mistake, this will translate into a notably lower GBP/NZD.