- Pound New Zealand Dollar Climbs to 1.8072 – New Zealand Dollar Pound Slips to 0.5529
- RBNZ Governor Wheeler Appeals for Lower NZD – Claims High NZD is Preventing Inflation Growth
- NZ September Election on the Horizon – Severe Volatility Forecast
The Pound New Zealand Dollar (GBP NZD) exchange rate has maintained its climb, primarily as a result of Wednesday’s comments from Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler who called for a lower NZD in order to stimulate inflation levels.
Wheeler’s announcement in this regard is not a new one; discussions have been ongoing regarding New Zealand’s inflation and the best ways it could be boosted towards target levels. Wheeler and many others essentially argue that the ‘Kiwi’ remaining high in value weakens the export sector, whilst a lower ‘Kiwi’ increases inflation in tradables, delivering better balanced growth.
Wheeler stated:
‘The appreciation in the exchange rate has been a headwind for the tradables sector and, by reducing already weak tradables inflation, made it more difficult to reach the Bank’s inflation goals.’
These comments triggered a selloff of the ‘Kiwi’ Dollar, further cementing GBP NZD’s climb into the end of this trading week.
UK Markit Manufacturing PMI Beats Expectations, Sterling (GBP) Bolstered
In an otherwise sparse data calendar for the United Kingdom today the UK Markit manufacturing PMI for August shone, printing at a four-month high of 56.9, smashing the expectation of 55 and indeed the previous revised figure of 55.3.
In addition, the figures pointed to a steep rise in the pace of production, business optimism, and accelerating employment growth, presenting a positive outlook for the UK economy.
NZ September Election could Result in Volatility for the ‘Kiwi’ Dollar (NZD)
One of the biggest risks to the New Zealand Dollar is the upcoming September the 23rd election, an event that could have two significant outcomes: In the first, most likely scenario, the existing party is re-elected, but without a majority, resulting in the need for a coalition with the New Zealand First party.
This possibility remains a cause for concern for many investors, as the market reaction could be to sell on the belief that immigration in New Zealand has been a notable force for economic growth, hence curbing it might harm the economy.
The other option is that the New Zealand Labour party wins which, again, is likely to cause volatility because they also have a pledge to cut immigration down to 30,000 a year, as well as a pledge to reform the RBNZ.
The latter is a big cause for concern for investors, especially as they are proposing that the Governor loses his singular power and instead gets replaced by a committee, on top of stretching their mandate to include things like employment.
Ultimately markets are anxious that upheavals could result in the RBNZ taking a more accommodative stance, thus driving the ‘Kiwi’ Dollar down in the process.
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