Pound-New Zealand Dollar could stay under pressure if the RBNZ signals further tightening, while the UK Budget may trigger fresh Sterling volatility.
The Pound to New Zealand Dollar (GBP/NZD) exchange rate ticked lower on Tuesday as investors took increasing bullish positions in the ‘kiwi’ ahead of the Reserve Bank of New Zealand (RBNZ) impending interest rate decision.
At the time of writing, GBP/NZD was trading at around NZ$2.3404. Down around 0.3% from the start of Tuesday’s session.
Pound to New Zealand Dollar (GBP/NZD): 2.341874 (-0.19%)
Euro to New Zealand Dollar (EUR/NZD): 1.95873 (-0.29%)
New Zealand Dollar to Dollar (NZD/USD): 0.5682 (-0.10%)
DAILY RECAP:
The New Zealand dollar (NZD) appreciated on Tuesday as investors positioned for a widely expected interest rate hike from the Reserve Bank of New Zealand following its October policy meeting.
The central bank is forecast to raise interest rates by 25 basis points, from 2.75% to 3%, when it concludes its meeting on Wednesday.
Although data published last week showed that annual inflation eased from 3.9% to 3.7% in the third quarter, it remained above the central bank’s 1–3% target range, with these inflationary pressures expected to persist as global energy prices continue to rise.
However, NZD’s gains were ultimately kept in check on Tuesday, amid wider market caution.
The Pound (GBP) remained subdued on Tuesday as investors continued to exercise caution ahead of Chancellor John Healey’s inaugural Autumn Budget on Wednesday.
Healey has been relatively tight-lipped about his tax and spending plans in the lead-up to the budget, only explicitly stating that his measures would support Prime Minister Andy Burnham in his push to provide households and businesses with ‘more breathing room’.
Markets expect the Chancellor faces a delicate balancing act between supporting economic growth and restoring the public finances, particularly amid a highly challenging backdrop.
Near-Term GBP/NZD Forecast: Can Healey Win Over Markets?
Looking ahead, the primary catalyst of movement for the Pound to New Zealand Dollar (GBP/NZD) exchange rate in mid-week trade will no doubt the response to Healey’s budget.
If Healey is able to convince investors that his tax and spending plans will help support economic growth, without breaking the government’s fiscal rules and triggering fresh turmoil in the bond market, Sterling is likely to strengthen.
In the meantime, with the RBNZ’s interest rate hike largely priced in by investors, any subsequent movement in the ‘kiwi’ on Wednesday is likely to be determined by the bank’s forward guidance.
If the RBNZ hints that it has more work to do in containing inflation, we are likely to see NZD exchange rates continue to strengthen.
Our currency coverage draws on live market data, official economic releases and published bank research.
