Pound New Zealand Dollar (GBP/NZD) Crashes As UK Economy Stagnates

The Pound New Zealand Dollar (GBP/NZD) exchange rate trended sharply lower midweek, as the UK’s latest GDP release showed that the British economy stagnated in April. Headwinds bore limited impact initially, as market jitters ahead of the Federal Reserve’s interest rate decision supported the Pound (GBP).

At the time of writing, GBP/NZD is trading at NZ$2.0645, having fallen by more than 0.5% in the past 24 hours.

Pound (GBP) Trades Mixed as US Inflation Misses Forecast

The Pound shot downward against the New Zealand Dollar (NZD) on Wednesday, as the UK economy stalled, and softer-than-expected US inflation data lent a boost to risk-on currencies.

Sterling faced headwinds early during the European session, as April’s GDP report printed at 0% from 0.4% the previous month. On a three-month basis, however, the economy expanded by 0.7% – helping to temper the market’s response.

The Office for National Statistics (ONS) remarked that yesterday’s release marked the weakest performance in four months, citing a fall in industrial output and construction which offset a rise in services activity. Investors fear that stalling economic growth could prompt the Bank of England (BoE) to bring forward its rate-cutting plans; though other indicators such as UK wage growth make such an outcome less likely.

Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, reassured markets: ‘Despite these disappointing GDP figures, a June interest rate cut looks improbable, with the Bank of England likely to be a little wary of shifting policy in the middle of a General Election campaign.’

Inspiring GBP movement later in the session, the latest US inflation data printed below estimates: core consumer prices expanded by 0.2% on a monthly basis and 3.4% in an annualised context. The softer-than-forecast data pressured the US Dollar (USD), consequently lending support to the currency’s rivals.

Thus, the Pound climbed against its safe-haven peers but fell sharply in exchange rates with perceived-riskier currencies such as the ‘Kiwi’.

New Zealand Dollar (NZD) Firms, Shrugs Off Chinese Data

The New Zealand Dollar climbed against several peers on Wednesday, boosted by weak US inflation data and the Reserve Bank of New Zealand (RBNZ)’s hawkish monetary policy outlook.

During the early Asian session, Chinese inflation missed forecasts: headline inflation printed at 0.3% rather than the anticipated 0.4% in the year to May, while on a monthly basis the economy contracted. New Zealand and China are close trading partners and high-impact Chinese data invariably influences NZD trading dynamics; yet the ‘Kiwi’ shrugged off headwinds, instead strengthening amid US Dollar weakness.

The increased likelihood of a September interest rate cut from the Federal Reserve following a softer-than-expected US inflation reading emboldened currency traders, as looser monetary policy in the world’s largest economy has a knock-on effect upon global markets. The prospect of less restrictive trading conditions sparked a wave of bullish sentiment amongst New Zealand Dollar investors.

Further supporting the ‘Kiwi’ were expectations for delayed monetary policy tightening in New Zealand’s economy. NZD traders are confident that the country’s central bank will keep interest rates on hold for the entire year, painting the RBNZ in a hawkish light compared with other major central banks such as the Bank of Canada (BoC), which recently enacted a 0.25% cut.

Speaking on the matter, ANZ New Zealand chief economist Sharon Zollner remarked: ‘Before cutting the OCR, the RBNZ needs to not only be confident that CPI (consumer price index) inflation is on its way to 2 percent, but that it can be reasonably expected to subsequently stay within the 1-3 percent target band.’

GBP/NZD Exchange Rate Forecast: Fed Decision in Focus

The Pound New Zealand Dollar exchange rate is likely to trade today upon the fallout from the Federal Reserve’s interest rate decision and monetary policy statement.

The US central bank is expected to keep interest rates on hold in the near-term, although comments from key policymakers including Fed Chairman Jerome Powell could shine a light upon the bank’s immediate focus. Markets are considering that the central bank could cut interest rates twice this year – once in September and again in December.

Also influencing GBP/NZD may be the latest round of employment data from Australia. Given the close trading relationship between AU and New Zealand, significant Australian data often has an impact upon the ‘Kiwi’.

Weaker consumer confidence in New Zealand’s closest trading partner could see both the Australian Dollar (AUD) and NZD weaken; although waning unemployment and the addition of jobs in Australia’s economy may cap headwinds. In tonight’s Asian session, an increase in New Zealand’s business PMI could further buoy the New Zealand Dollar.