Pound-to-New Zealand Dollar Rate Sees Fresh Highs as Kiwi Tipped for New 2009 Low

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- GBP/NZD Spot Rate: 2.0543, up +0.61% today

- Indicative bank rates for transfers: 1.9828-1.9972

- Indicative broker rates for transfers: 2.0239-2.0362 >> find out more about this rate.

The Pound-to-New Zealand Dollar rate reached its highest level since the Brexit referendum Friday as the Kiwi currency tumbled as global markets remained in panic mode over the spread of coronavirus outside of China and after it was confirmed that New Zealand has imported its first case.

New Zealand’s Ministry of Health said Friday that a man in 60s was found to have coronavirus upon his return from Iran, leading the government to put a stop on travel of anybody and everybody travelling directly from that country. The government has also declined to exempt Chinese students from a ban covering all individuals travelling directly from the world’s second largest economy. Indirect travellers are required to self-isolate. 

Wellington is just one of a growing line of capitals to have declared cases of the viral form of pneumonia, which brought China’s economy to a standstill and disrupted supply chains of multinational companies the world over and now poses a significant threat to the global economy. China’s enforced quarantine measures left cities of millions desolate with neither pedestrians nor motorists to be seen on streets, indicating a likely severe blow to economic output.

“The first confirmed case in NZ seemed to trigger a sharper slide in NZD (-1.15% to 0.6235),” says Imre Speizer, a strategist at Westpac. “Note that Westpac NZ has adjusted its forecasts as the impacts intensify and Bill Evans has affirmed his rate cutting bias for both RBA and FOMC.”

New Zealand's currency would always have been likely to struggle on Friday even without the coronavirus case as investors have continued to dump so-called risk assets, which include commodity currencies, which is betrayed by a similarity in the losses seen by the NZD/USD and AUD/USD rates heading into the weekend. The NZD/USD rate was down more than -1%, helping to sustain an upward move in the Pound-to-New Zealand Dollar rate even as Sterling tumbled against five of its nine major rivals. 

Already Chinese-style enforced quarantine can be observed around a collection of towns and villages in some northern regions of Italy, where an outbreak was identified Thursday, 20 February and one which has since spread rapidly. Italy’s Health Ministry said Friday that as of 18:00 the prior evening it knew of 650 cases and 17 fatalities, implying a mortality rate of 3%. 

As a result investors are facing the prospect of quarantine measures increasingly being imposed in the world’s largest and most developed economies, leading to a sudden stoppage of economic output and possibly other unknowable consequences. And they’ve responded to those risks this week by pricing-in an increased prospect of the Reserve Bank of New Zealand (RBNZ) rate cut being delivered over the coming months.

“The spread of the coronavirus has increased market expectations for more policy easing by the RBNZ to cushion the small open NZ economy.  OIS markets are now pricing a 50% chance of a RBNZ rate cut in March despite the RBNZ’s upbeat public comments in recent weeks. A follow‑up rate cut is largely priced by the November 2020 meeting,” says Joseph Capurso, a strategist at Commonwealth Bank of Australia. 

The World Health Organization (WHO) is steadfastly reluctant to declare a pandemic even as it warns all governments they should expect cases in their countries, while central bankers have played down the threat posed to the growth outlook, but investors have voted with wallets and feet fthis week. 

Stock markets have across the globe have fallen more than 10% this week, technically placing them in ‘correction territory’ and just a few steps off from a ‘bear market’,” as investors have flocked toward the safety sovereign bonds, yields of which have fallen to new record lows. 

This is an utterly inhospitable environment for commodity-backed currencies of ‘small, open economies’ like New Zealand. 

“The kiwi is catching up to the downside as the market readies for RBNZ cuts to come (short NZ yields have collapsed far more quickly than those for AU over the last week). NZDUSD is looking at the last shreds of the range this morning and could be set for a test below 0.6000,” says John Hardy, head of FX strategy at Saxo Bank, tipping the Kiwi for what would be its lowest since March 2009.

Sovereign bond yields have fallen sharply in all economies and to record lows in some parts as investors seek the perceived safety of government debts, and in the process the yield appeal of some currencies has been impact although most notably in the case of the U.S., Kiwi and Australian Dollars. 

European stock markets were all down more than 2% Friday, as they were on Thursday and Wednesday, after a bloody Asia session saw the Shanghai Composite Index decline -3.71% and Australia’s ASX 200 fall -3.25%. 

London’s FTSE 100 has fallen -11.5% this week and is down -13.5% for 2020 while New Zealand’s NZX 50 has dropped more than 7% for the week.

Saxo’s Hardy says the NZD/USD rate could hit 0.60 and below over the coming days, if the coronavirus crisis worsens and investors remain in panic mode. That could lift the Pound-to-Kiwi rate as high as 2.1396 so long as the Pound-to-Dollar rate remains around Friday’s 1.28385 level. 

That latter GBP/USD rate however, could face further declines that temper the upward move in the Pound-to-Kiwi rate.