As the Reserve Bank of New Zealand (RBNZ) left interest rates on hold the Pound New Zealand Dollar exchange rate came under renewed pressure.
Investors were not surprised that the central bank continued to adopt a neutral tone on monetary policy, making no move towards dovishness.
With current Governor Graeme Wheeler set to step down from his post in September the RBNZ seems unlikely to make any particular shift in outlook until then.
As analysts at TDS noted:
‘The Bank is firmly focused on offshore developments so until Spencer takes the RBNZ reins, the odds of a change in bias towards a hint of hawk are low.’
This limits the downside potential of the ‘Kiwi’, in the short term at least, particularly as the latest domestic credit card spending figures pointed towards an uptick in consumer confidence.
While market risk appetite was somewhat muted by the ongoing decline in oil prices this was not enough to bolster the GBP NZD exchange rate on Thursday morning.
Mixed BoE Outlook Provokes Pound Volatility
Sterling remained under pressure, meanwhile, as a sense of domestic political instability continued to deter investors.
Confidence in the longevity and abilities of the minority Conservative government weakened in the wake of the Queen’s speech, particularly as the question of Brexit still looms large.
Even so, the Pound did receive a boost on the back of unexpectedly hawkish commentary from Bank of England (BoE) chief economist Andy Haldane.
While Haldane is generally seen as the most dovish member of the Monetary Policy Committee (MPC) he noted that interest rates may have to rise before the end of the year.
This encouraged bets that the BoE is moving towards a tightening bias, in spite of the persistent neutrality espoused by Governor Mark Carney.
However, the Pound struggled to hold onto its gains in the absence of fresh supportive domestic data.
As signs from the economy continue to point towards a loss of momentum the chances of the BoE hiking interest rates are likely to remain somewhat limited.
If the GfK consumer confidence index shows a fresh dip in sentiment the outlook for the UK economy could weaken, given that high levels of consumer spending helped to drive growth in the wake of the Brexit vote.
On the other hand, the GBP NZD exchange rate could find a rallying point if the latest raft of New Zealand trade data proves less-than-encouraging.
Any narrowing of the trade surplus is likely to dampen the appeal of the ‘Kiwi’, especially if the sense of wider market risk appetite continues to deteriorate in the coming days.
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