The Pound to New Zealand Dollar exchange rate (GBP/NZD) sunk by around -0.7 cents from 1.9560 to 1.9490 late last night in response to the Reserve Bank of New Zealand’s decision to raise interest rates by a further 25 basis points in April to 3.00%.
The rate hike had been widely predicted by financial traders; nevertheless it still had a sizeable impact on demand for the ‘Kiwi’ Dollar. This is because the RBNZ has a much higher benchmark interest rate than any of the other major currencies.
At 3.00% the New Zealand rate is 12 times higher than the Federal Reserve and the European Central Bank’s 0.25%, 6 times higher than the Bank of England’s 0.50%, 3 times higher than the Bank of Canada’s 1.00% and still 50 basis points higher than the Reserve Bank of Australia’s 2.50%. This gives traders a much greater incentive to invest in the New Zealand Dollar rather than the other majors.
RBNZ Governor Graeme Wheeler hinted that further rate hikes would be witnessed over the next few months and repeated his comments from earlier statements that inflationary pressures would likely remain moderately high over the next two years:
“It is important that inflation expectations remain contained. To achieve this it is necessary to raise rates towards a level at which they are no longer adding to demand”.
It is now predicted that the Central Bank will hike rates again in June, which bolstered demand for the high-yielding currency.
The Pound struggled yesterday as the latest Bank of England Minutes report knocked the wind from its sails. Markets had hoped for a hawkish BoE report in light of the recent sharp fall in Unemployment, however, the literature showed that some policymakers were concerned that there is still a significant level of slack remaining in the UK labour market.
Members of the Monetary Policy Committee appeared split between the view that many of Briton’s self-employed workforce are searching for full-time work, and the opposing opinion that many of those working for themselves are doing so as an alternative to retirement:
“Nevertheless, it was possible that some of the self-employed were underemployed and would be more productive as employees were more jobs to become available.” – This was the statement that softened demand for Sterling.
Other data printed positively for the Pound: the UK budget deficit shrunk by -£4.7 billion to its lowest level since the financial crisis and the CBI’s measure of Manufacturing optimism rose to +33, which is it is highest level since 1973.
Comments are closed.