The Pound to New Zealand Dollar (GBP/NZD) exchange rate began a considerable descent yesterday after both UK news and global news weakened Sterling while making the risky ‘Kiwi’ more appealing to investors.
Osborne’s Disappointing 2016 UK Budget Deters Investors from the Struggling Pound
The Pound’s recent weak-streak hit another pitfall yesterday as the highly anticipated 2016 UK Budget was delivered to Parliament by Chancellor of the Exchequer George Osborne. The GBP/NZD pair was one of many Sterling pairings which suffered drops, and the Pound has extended losses this morning. The GBP/NZD exchange rate is currently down by -0.6% on this morning’s opening levels of 2.1143 and seems unable to maintain any height.
In bearish news that managed to heavily disappoint already-bearish investors, GDP forecasts for the coming year have been cut from 2.4% to a much lower 2.0% with forecasts for 2017 through 2020 also lower than they had been at the end of 2015.
This wasn’t the end of investor woes however, as a number of other figures discussed drove the budget’s nail deeper. Public spending over the next four years has been cut by around -£3.5 billion and strengthened austerity measures have meant a further £1.2billion cut to disabled benefits.
On top of all that Osborne had failed to meet the deficit targets he had promised to fulfil in previous budgets. He instead promised a surplus by 2020 but his optimistic mask and positive spins were unable to hide the facts from investors.
Some analysts suggest that Osborne’s ‘surprise’ announcement, a new taxation on sugary drinks as well as money towards primary school health, was planned as damage control for a mostly-bearish Budget. The media seems to have caught on, focusing more on the controversial but exciting decision that promises to make £530 million after 2018.
This and positive unemployment data from yesterday however seem to have not inspired any considerable investor confidence in the Pound as it dropped right through the day.
New Zealand Dollar (NZD) Experiences Confidence Boost as Federal Reserve Bears Inspire Risk-Sentiment
Additional movement against the Pound was caused by a bullish change in risk-sentiment yesterday, after the Federal Reserve’s highly anticipated key rate announcement left investors a little disheartened towards the ‘safe-haven’ US Dollar (USD).
North America’s central bank confirmed last night that while growth was progressing and the key interest rate would be kept at the 0.50% established in December, their plans to hike the rate later this year have been essentially cut in half.
The Fed remained optimistic late last year that 2016 would see rates being hiked by a bullish 100 basis points but yesterday showed that a more realistic forecast would now be only 50 basis points. Supposedly the US economy’s growth had been negatively affected by ‘economic risk’ across the globe.
Currently, two more interest rate raises are still expected in 2016, which is still optimistic. However investors who had expected stronger interest rate growth were disappointed and began to look elsewhere for higher-risk investments.
This increased interest in higher-risk currencies is a strong plus for the commodity bloc. Even New Zealand, which had recently experienced dovish Reserve Bank of New Zealand (RBNZ) announcements and is in the middle of a milk price commodity crisis was able to benefit considerably from investors flocking to the riskier ‘Kiwi’.
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Forecast: Bank of England (BoE) Key Decisions Likely to Influence Sterling Further
Hot on the heels of the eventful Budget event, this afternoon will see investors reacting to the Bank of England’s (BoE) announcements on the key interest rate and asset purchasing targets.
While the interest rate is expected to be kept at its current gradual growth level of 0.50%, a bearish budget and dovish predictions of the central bank’s foreshadowing could send an already struggling Pound even further downward against its rivals.
Analysts predict that the BoE will hint at cuts down the line and adopt a dovish view of the UK economy – a prediction that seems a little more likely after yesterday’s budget.
However, it is debatable whether the Pound’s weakness against the New Zealand Dollar will be long-term. While the foreign exchange market is currently high-risk, the ‘Kiwi’ seems less favourable than its peers due to New Zealand’s domestic economic issues. It’s possible that bounce-backs from Sterling could occur once investors come to terms with the implications of the budget.
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate is currently trending in the region of 2.1025 while the New Zealand Dollar to Pound Sterling (NZD/GBP) exchange rate trends in the region of 0.4755.
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