The Pound New Zealand Dollar exchange rate spiked to a near-month-high as markets reacted to the US election win of Donald Trump. Although markets cooled from this, risk-demand remained low and the ‘Kiwi’ Dollar remained unappealing due to a rate cut from the Reserve Bank of New Zealand (RBNZ) keeping GBP NZD well above its weekly low of 1.67 and above the key level of 1.70.
Pound (GBP) Strengthens on US Trade Hopes
After trending limply early on Wednesday as risk-correlated currencies and the US Dollar took the brunt of the market’s Trump-shock, Sterling ended the day with a much stronger performance.
Indication from the UK government and US President-to-be Donald Trump that a US-UK trade deal under Trump’s administration was on offer, the British currency surged. This allowed GBP NZD to easily advance.
While the Pound’s sentiment was a little more limp again on Thursday morning, the currency has been able to hold its ground against the highly volatile ‘Kiwi’.
New Zealand Dollar (NZD) Undermined by Risk-Off Movement and RBNZ Decision
One of the biggest threats to risk-sentiment perceived by analysts has happened – Donald Trump has been elected as the next US President.
Trump’s unorthodox protectionist trade and foreign policy proposals have been widely seen as threats to trade-heavy markets that would miss out from a US that is stricter on trade.
As a result, commodity-correlated risky currencies like the New Zealand Dollar felt the brunt of this market shock on Wednesday. GBP NZD soared as ‘Kiwi’ traders rushed away from risk into ‘safe haven’ assets.
The New Zealand Dollar was also weakened by the Reserve Bank of New Zealand’s (RBNZ) widely expected decision to cut the NZ interest rate. The rate was cut from 2.00% to a record-low 1.75%, but its effect on NZD exchange rates has been limited compared to Wednesday’s Trump shock.
Pound New Zealand Dollar (GBP NZD) Forecast: What’s Next for Risk Traders?
Despite analysts widely forecasting that risky investments may be unappealing for some time due to Trump’s win destabilising markets, trade appeared to calm quicker than expected on Wednesday.
Hopes of a more pragmatic President Trump than the man seen on the campaign trail left traders speculating that global trade may not be as under threat as previously expected.
However, demand for risky currencies still remained low on Thursday and could continue to do so, especially if Trump indicates that those more controversial protectionist proposals are still on the table for his Presidency.
Speculation that the Federal Reserve could still hike US interest rates in its December could also offset demand for risk, as investors would head to ‘safe havens’ (especially the US Dollar) to defend against volatility in this scenario.
Regardless, if the current cooling market movement continues, traders could be interested in risky currencies again as soon as next week, meaning there is not any significant downside risk to long-term New Zealand Dollar trade in the absence of more controversial Trump comments.
While GBP NZD is more likely now to recover more solidly from its record-low levels due to low risk and the possibility of a Fed rate hike in December, the pair is still unlikely to recover to its pre-Brexit vote levels in the short to long-term future.
At the time of writing, the Pound New Zealand Dollar exchange rate trended in the region of 1.71, while the New Zealand Dollar Pound exchange rate traded at around 0.58.
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