New Zealand Dollar Exchange Rate Forecast: GBP NZD Outlook to Gain

June 18, 2014 - Written by Tim Boyer

STORY LINK New Zealand Dollar Exchange Rate Forecast: GBP NZD Outlook to Gain

New Zealand Dollar Rate Today:The New Zealand was little changed against the Australina Dollar on Friday as traders look for direction after the US Federal Reserve’s dovish policy statement. Both South Pacific nations could see volatility throughout the session as the instability in Iraq continues to weigh upon demand for perceived riskier assets. The turmoil is also putting pressure upon oil prices.

As of Friday we find the foreign exchange markets priced as follows:
- Pound New Zealand Dollar exchange rate is 0.15pct higher at 1.95958 GBP/NZD
- Pound US Dollar exchange rate is +0.1pct higher at 1.70548 GBP/USD
- Pound Euro exchange rate is +0.11pct higher at 1.25333 GBP/EUR

The British Pound Sterling (GBP) weakened against the majority of its most traded peers on Wednesday including the New Zealand Dollar exchange rate (NZD) as the market deemed the Bank of England’s June policy meeting minutes as being less hawkish than hoped.

The minutes revealed that the Banks monetary policy committee voted 9-0 in favour of maintaining interest rates at the record low level of 0.5% but did suggest that some policy makers could vote to raise rates before the end of the year.

Investors were disappointed however as the minutes said that a rate rise would be depended on the UK’s inflation rate and wage growth. Both have been weak with data showing that the nation’s annual inflation rate fell by its slowest pace in over four years in May. Wage growth meanwhile continues to be below the inflation rate.

“A more dovish tone than the surprisingly hawkish views on interest rates presented by Mark Carney in his Mansion House speech is evident, which raises questions about the governor’s apparent shift in thinking. That said, the minutes do provide some answers. The Committee noted that the low probability attached by the markets for a rate hike in 2014 was ‘somewhat surprising’. Moreover, June’s minutes, as well as May’s pointed to the policy decision becoming more balanced for some members,” said Martin Beck a senior economic advisor to the EY ITEM Club.

The Pound Sterling surged, but quickly retreats...

After the minutes were released the Pound briefly surged against its peers but then quickly went on the retreat as investors digested what they meant.

“While today’s minutes hint that a rate rise could come earlier than 2015, the case for hiking rates soon is far from cut and dried,” added Mr Beck.

The fact that the MPC remained united in voting for rates to stay at the record low level of 0.5% dampened speculation for a rate hike before the end of the year.

“Anyone expecting a surprise split vote for a rate rise was left disappointed by the release of the MPC minute,” said an economist.

Sterling is likely to experience further volatility against its peers on Thursday if the latest UK retail sales data comes in weaker than forecast.

The New Zealand Dollar edged higher against a number of peers after released early in the session showed that the nation’s current account swung into a surplus of NZ$1.41 billion in the first quarter, from a deficit of NZ$1.51 billion in the fourth quarter of 2013.

According to economist Jason Attewell; ‘The smaller deficit follows last quarter $1.6 billion fall, making this the smallest current account deficit since 2010. New Zealand is most likely to record a current account surplus in March quarters, when we have more overseas visitors coming to New Zealand.’

NZ Dollar advances against a weakened British Pound exchange rate

The New Zealand Dollar then edged higher against the weakened Pound but remained little moved against the US Dollar as investors await the release of tomorrow’s data which is expected to show that the domestic economy grew strongly in the first quarter of 2014.

Government data due tomorrow will probably show economic growth accelerated in the first quarter on increased construction activity, supporting the Reserve Bank of New Zealand’s expectations that it must press on with interest rate increases to keep inflation at bay.

The Central Bank is expecting tomorrow’s data to show that New Zealand’s growth domestic product grew by 1.1% in the first three months of the year, up from the 0.9% pace witnessed in the fourth quarter of last year. If GDP does rise it will be the fifth quarter where it has grown by 1% or above in the past six years.

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