- Pound New Zealand Dollar Forecast to Fall Further – UK market anxiety unlikely to let up
- RBNZ Cuts New Zealand Overnight Rate – But NZD value surges in response
- Forecast: What’s Next for the Bank of England? – Speculation of further easing ongoing
- Forecast: Will RBNZ Act Again? – Attempts to devalue ‘Kiwi’ seemingly failed
Pound New Zealand Dollar Forecast to Hit Record Low
An increase in demand for risky currencies caused by yet another USD selloff boosted the New Zealand Dollar on Friday, pushing GBP/NZD down to record-low levels.
Next week’s UK inflation report for July will serve as a strong indication to how consumer prices have changed since the Brexit vote, and will likely involve Sterling’s drop in value in some way.
If this report shocks markets, it could make a GBP recovery in both the short and long term, and will increase speculation on how the Bank of England (BoE) will handle inflation fluctuations despite the UK’s record low interest rates.
The New Zealand Dollar, on the other hand, may see some of its recent bullishness given to the Canadian Dollar in the coming weeks if rumours about oil-producing nations agreeing on an output cap finally reach fruition.
Regardless, GBP/NZD is likely to continue to trend on the downside from the short to long-term. A report published by Bloomberg on Friday indicated that the New Zealand Dollar had strengthened considerably this year, while Sterling has been the world’s worst-performing major currency in 2016.
(Published 13:10 BST 11/08/2016)
Thursday’s Reserve Bank of New Zealand (RBNZ) interest rate cut altered the Pound New Zealand Dollar exchange rate forecast, as the ‘Kiwi’ Dollar failed to fall in value as the bank would have liked. Instead, NZD soared in response to the news due to investor expectations of a more aggressive stimulus package.
Beginning the week around the level of 1.8308, GBP/NZD has tumbled over the last few days, sharply losing around two cents in value on Thursday in response to the RBNZ’s interest rate decision. At the time of writing, GBP/NZD trended in the region of 1.7870.
Pound (GBP) Loses Out to NZD as UK News Continues to Disappoint
The Pound’s appeal has been waning since last week, as the Bank of England (BoE) revealed a more aggressive than expected monetary stimulus package including a rate cut, quantitative easing and corporate bond purchases.
The British currency continued to flounder later in the week as amid a relatively quiet economic calendar, the only influential prints available continued to indicate that the UK’s economy was handling the Brexit decision poorly.
July’s house price balance report from RICS revealed that house prices had come in at 5%, worse than the expected 6%. This weighed on Sterling’s chances of recovery, as well as allowing the ‘Kiwi’ to hold its ground as markets readjusted following the RBNZ’s decision to cut New Zealand interest rates.
During Thursday’s Asian session, the Reserve Bank of New Zealand (RBNZ) cut New Zealand’s interest rate from 2.25% to 2.00%.
This 25 basis point cut was seen by markets as less aggressive action than expected, in light of the RBNZ’s sudden economic assessment a few weeks ago.
As a result, NZD surged higher across the board, likely disappointing RBNZ officials who had wanted the ‘Kiwi’ to lose value.
Pound Forecast: Further Bank of England (BoE) Easing Still Likely
The Bank of England’s (BoE) top ranking officials notably stated last week that the current aggressive stimulus package was made with intentional room for manoeuvre.
This means that the bank fully intends to be able to ease monetary policy further in the coming months and years if the UK’s economic situation does not experience a marked improvement.
BoE policymaker Ian McCafferty continued this narrative this week, in a piece for the Times in which he started that the ‘bank rate can be cut further, closer to zero, and quantitative easing can be stepped up’.
This stance has been consistent among Monetary Policy Committee (MPC) members since last week’s policy decision, meaning that further easing is indeed likely.
If Britain’s economy does not improve in the coming months, the BoE will continue to expand its easing measures and Sterling will see a more long-term drop. Long-term recovery in GBP value will become increasingly unlikely.
New Zealand Dollar (NZD) Forecast: Will the RBNZ Need to Cut Rates Again?
The New Zealand Dollar (NZD) surged on the announcement of the Reserve Bank of New Zealand’s (RBNZ) latest interest rate cut on Thursday. This is likely not what the bank’s officials hoped for.
Even despite a small devaluation in the ‘Kiwi’ in response to the RBNZ’s economic assessment in late-July, the ‘Kiwi’ is up 1.5% in August so far and up 6.9% in 2016.
The rate cut was expected, with some even expecting a cut of 50 basis points. Because of this, high appeal for risk amid low inflation expectations in other leading nations has caused NZD exchange rates to defy the RBNZ’s expectations.
The RBNZ suggested in its meeting that 2.0% would not be the end of the rate cutting cycle. According to Business Insider Australia;
‘Suggesting that the rate cut won’t be the last, the board stated that its “current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range” …
On inflation, one of the main factors behind the decision to cut rates, it acknowledged that while “long-term inflation expectations are well-anchored at 2 percent, the sustained weakness in headline inflation risks further declines in inflation expectations”.’
However, some analysts suggest that unless the RBNZ moves more bearishly than expected, the New Zealand Dollar could remain overvalued.
Pound New Zealand Dollar Forecast: Long-Term Movement Likely to See GBP/NZD Lower
The Pound is unlikely to recover a considerable amount against the ‘Kiwi’ in either the short or long term, with the New Zealand Dollar on an uptrend throughout the year and even the RBNZ’s rate cuts unable to deter it for long (if at all).
If BoE easing bets continue to put pressure on the Pound as expected, and the New Zealand Dollar continues to climb despite devaluation attempts and easing from the RBNZ, the GBP/NZD exchange rate could easily fall to 1.16 or lower in the coming months.
At the time of writing, the Pound New Zealand Dollar exchange rate trended in the region of 1.7895, while the New Zealand Dollar Pound rate fluctuated around the level of 0.5585. The Pound New Zealand Dollar forecast sees the pair dropping further despite attempted recoveries following the ‘Kiwi’s surge.
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