The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate hit a low of 1.9572 on Wednesday in response to the Bank of England’s meeting minutes.
The minutes showed that the Monetary Policy Committee is maintaining a united front when it comes to the timeline for increasing interest rates. It was also noted that the UK’s so-called ‘overheating’ housing market might be cooling.
However, the Reserve Bank of New Zealand’s interest rate decision was a turning point for the Pound to Kiwi pairing, and the GBP/NZD exchange rate leapt higher during Australasian trading.
The US Dollar to New Zealand (GBP/NZD) exchange rate rallied to a seven-week high overnight.
As economists expected, the RBNZ opted to increase interest rates by a quarter of a percentage point, taking the official cash rate to 3.5%.
The fact that such an action had largely been priced into the market meant that the decision had little impact on the appeal of the New Zealand Dollar.
However, Reserve Bank of New Zealand Governor Graeme Wheeler issued comments that dragged the commodity-driven currency lower.
In his statement Wheeler asserted; ‘New Zealand’s economy is expected to grow at an annual pace of 3.7 percent over 2014. Global financial conditions remain very accommodative and are reflected in low interest rates, narrow risk spreads, and low financial market volatility. Economic growth among New Zealand’s trading partners has eased slightly in the first half of 2014, but this appears to be due to temporary factors. Construction, particularly in Canterbury, is growing strongly. At the same time, strong net immigration is adding to housing and household demand, although house price inflation has moderated further since the June Statement.’
Wheeler went on to note that New Zealand’s economy appears to be responding to the tightening of fiscal stimulus introduced earlier in the year. He added that before borrowing costs are hiked further there needs to be a ‘period of assessment.’
The RBNZ has increased borrowing costs four times since March, but the fact that the central bank now plans to pause before continuing along this vein has weighed on its domestic currency – a fact the central bank is no doubt welcoming as the resilient ‘Kiwi’ has proven to be a hindrance to domestic export growth.
During his policy statement Wheeler deemed the strength of the New Zealand Dollar both unsustainable and unjustifiable and he forecast that the currency could be poised for a significant reversal.
After the RBNZ decision the Pound to New Zealand Dollar exchange rate rebounded and achieved a high of 1.9791.
In the hours ahead further movement in the GBP/NZD pairing could be caused by the UK’s retail sales report.
If UK sales are shown to have increased by 0.3% in June on a month-on-month basis (as economists expect) the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate could climb even higher before the close of trade.
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