ASB Forecast GBP/NZD Rate Lower to 1.61 Despite Further RBNZ Rate Cuts
The NZ Dollar is forecast to dominate the British Pound over coming months despite the RBNZ doing its best to quell theur rampant currency with a November interest rate cut.
- Forecasts show GBP/NZD as low as 1.61 despite further rate cuts at RBNZ
- Pound to New Zealand Dollar exchange rate: 1.8056
- New Zealand Dollar to Pound Sterling exchange rate: 0.55
Over recent weeks foreign exchange markets have delivered a modicum of relief to those looking to make New Zealand Dollar payments.
The incessant selling pressure that greeted the UK currency following the EU referendum has eased allowing Pound Sterling has drawn a temporary line in the sand at 1.77.
The strong buying support at this level suggests the market believes Sterling to be sufficiently discounted at such levels to be considered a bargain.
Yet, a cheaper Pound could still lie ahead for New Zealanders intent on purchasing UK currency over coming months.
According to the latest NZ Dollar forecast note from ASB, the Auckland-based bank, a break below 1.77 is possible.
"The GBP fell sharply in response to the UK’s decision to leave the EU. Our base case had been that the UK would remain in the EU. Given this unexpected turn of events, the GBP is now likely to remain lower than expected and the NZD/GBP higher as a result," say ASB.
The note comes at a time when the Reserve Bank of New Zealand (RBNZ) is seen attempting to put a lid on any further NZD strengthening in an attempt to ensure New Zealand’s exports remain competitive on the international market.
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.
NZD strength has been a thorn in the RBNZ’s side with the NZD trade-weighted index is sitting 6% higher in Q3 than the RBNZ forecast in the June MPS.
Cutting interest rates is typically the best option available to a central bank burdened with a strong currency.
Lower interest rates would also help in getting NZ inflation higher than its near-zero level.
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.
Of course the RBNZ would have slashed interest rates to shreds were it not for the country’s hot property market - cutting rates may only fuel the fire that has seen New Zealand become an incredibly expensive country in which to purchase property.
Inflated housing markets typically prove to be a source of broader financial instability when the bubble bursts, and the RBNZ will be wary of playing any part in creating such a scenario.
Should the RBNZ feel that other measures are likely to put a limit on house price growth, they may tempted to cut rates, and therefore push the NZD lower.
“What of the rampant housing market? The new lending restrictions will slow the housing up and down the country over the rest of this year, but in areas where supply is still trying to catch demand the impact is likely to wear off,” says Nick Tuffley at ASB.
Auckland, in particular, is unlikely to see building consent issuance match population growth requirements for a couple of years.
“NZ house prices may bounce slightly in the first half of 2017,” says Tuffley, “but the sort of price growth a number of regions have experienced over the last couple of years will not be sustained. Expect 2017 to be much quieter on the housing front.”
If the RBNZ has a similar view, they may cut rates.
“We expect the RBNZ to drop the OCR to 1.75% by November and, if the NZD continues to hold up, an even lower OCR is possible,” say ASB.
Despite the Cut, the NZD Should Trade Higher
Any downside pressure on the NZD coming from the RBNZ is however forecast to be temporary.
Structural factors including the high Terms of Trade, as well as relatively high interest rates, have supported the NZD.
“The recent Brexit vote also saw the NZD lift against the GBP and the EUR and we revised our FX forecasts in June to reflect the new post-Brexit outlook. Further, the slower than anticipated US Fed tightening cycle has limited NZD downside,” says Tuffley.
Overall, ASB epect the NZD to retain a degree of strength, especially given the supportive structural factors.
In the short term, additional OCR cuts by the RBNZ will constrain the NZD.
However, impacts on the NZD/EUR and NZD/GBP will be more muted as the EUR and GBP continue to be impacted by the Brexit outcome.
The NZD/AUD is likely to hold up as the RBA leans towards a further interest rate cut later this year.”
December 2016 sees the NZD to GBP exchange rate trading at 0.54, March 2017 sees it at 0.57, June 2017 at 0.58 and December 2017 at 0.62.
From a Pound into New Zealand Dollar angle, 0.54 NZD/GBP = 1.8519, 0.57 = 1.7544, 0.58 = 1.7241 and 0.62 = 1.61.
