Pound-New Zealand Dollar Rate Vulnerable Above 1.95
- Written by: James Skinner
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- GBP/NZD testing recent highs near 1.95
- But vulnerable to NZD/USD acceleration
- NZD/USD eyes 0.73+ on softening USD
- With NZ economy set for a budget boost
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- GBP/NZD spot rate at time of writing: 1.9467
- Bank transfer rate (indicative guide): 1.8862-1.9329
- FX specialist providers (indicative guide): 1.9122-1.9160
- More information on FX specialist rates, here
- Set an exchange rate alert, here
The Pound-to-New Zealand Dollar exchange rate was testing its recent highs near to 1.95 on Tuesday, above which it would be vulnerable to a correction in light of Sterling’s recent strength and scope for an acceleration by the Kiwi over the coming weeks.
Pound Sterling enjoyed a strong start to the new week following a weekend in which UK elections passed without hitch and after the government in London pushed ahead with its drive to reopen shuttered parts of the economy.
Lessening restrictions lend confidence to expectations of a strong UK economic recovery this summer while the passing of political risks voids arguments for Sterling to be trading at a discount against peers.
However, even these factors may not be enough to keep GBP/NZD afloat for long if and when it crosses the nearby 1.95 handle as New Zealand’s economic outlook appears likely to be bolstered later this month when the government in Wellington sets out its latest budget.
“Unemployment has continued to trend down, an extra 32,000 jobs have been created in the six months to March and business and consumer confidence is increasing as our vaccine rollout is ramping up and we are carefully opening up our borders,” says Finance Minister Grant Robertson in a pre-budget speech on Monday.
Above: Pound-to-New Zealand Dollar rate shown at daily intervals with NZD/USD.
“There is a bit more space in our operating and capital allowances to support the economy in line with our wellbeing approach while also providing further scope to keep a lid on our higher debt levels and then lower it once the recovery is secure,” Robertson adds.
Finance minister Robertson told New Zealand’s parliament on Monday that there would be extra cash to support government priorities in areas like housing, child care and climate change when the latest budget is unveiled on May 21.
Analysts and investors already expected New Zealand’s economy to fare well this year compared with peers owing in part to early success in containing the coronavirus last year, although any additional spending in areas like housing would add further to an already robust recovery outlook.
Meanwhile, and on the currency side, New Zealand’s Dollar has continued its recovery from late March declines inspired by government efforts to reign in house price growth.
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“The USD is falling, and locally, NZ data has been strong recently (employment, building consent, business confidence),” says Imre Speizer, head of NZ strategy at Westpac. “NZD/USD should be supported by the Fed remaining accommodative, global growth improving further, and commodity prices continuing to rise. NZD/USD should rise to 0.76 by year end.”
The Kiwi Dollar’s recovery from steep March losses has made it the second best performing major currency of the last month by Tuesday but still left a way to go before it catches up with the Australian Dollar, Pound Sterling and handful of other major currencies for 2021.
A further catch up could be likely later this month if the Friday 21, May budget is supportive enough of New Zealand’s economic recovery and the mood in global markets remains upbeat.
Above: Pound-to-New Zealand Dollar rate shown at weekly intervals alongside NZD/USD.
“We remain constrictive on commodities and the NZD and continue to look to broad USD trends for NZD direction. The local data schedule is light today with just card spending due. Housing data later in the week could add fuel for calls for earlier RBNZ OCR hikes, but expectations are already elevated,” says David Croy, a strategist at ANZ.
Healthy global investor risk appetite and New Zealand’s own economic merits have helped to build confidence among Kiwi companies in the outlook for inflation, according to the latest inflation expectations survey from the Reserve Bank of New Zealand (RBNZ).
The latest RBNZ survey was out last Friday and showed the recent uptrend in expectations for price growth continuing, lifting the two-year forward expectation above 2% and past the midpoint of the RBNZ’s 1%-to-3% inflation target for the first time since the onset of the pandemic.
That could in turn mean that the RBNZ is either more tolerant or simply less intolerant of increases in Kiwi exchange rates going forward.
Large increases in exchange rates make imported goods cheaper and so can constrain if-not reduce inflation, which would be contrary to aims of the RBNZ and explains why the bank has often frowned upon or questioned New Zealand Dollar rallies in the past.
