Currency

GBP/NZD Exchange Rate Hits One-Week Low

March 7, 2024

2 minutes read

Key Points:

GBP/NZD falls amid positive trade sentiment.
Positive Chinese data boosts NZD.
UK Spring Budget pressures GBP, BoE cuts speculated.

The Pound New Zealand Dollar (GBP/NZD) exchange rate weakened on Thursday amid a bout of cheery trade.

At time of writing GBP/NZD traded at around NZ$2.0704, down roughly 0.4% from Thursday’s opening rate.

New Zealand Dollar (NZD) Bolstered by Risk-On Flows

The New Zealand Dollar (NZD) strengthened against the majority of its peers on Thursday as an improvement in risk appetite served to lift the risk-sensitive ‘Kiwi’.

Further aiding the New Zealand Dollar on Thursday was the latest Chinese balance of trade data.

China’s trade surplus increased to $125.16 billion in January to February 2024, and skyrocketed past market expectations of $103.7 billion. Both Chinese imports and exports rose, by 3.5% and 7.1% respectively.

The expansion in Chinese trade activity was accredited to an increased demand for electronics, and pointed to a wider global recovery.

Due to New Zealand’s trading partnership with China, positive Chinese trade data underpinned the ‘Kiwi’ on Thursday, as it continued to climb against its peers.

Pound (GBP) Mixed following Spring Budget

The Pound (GBP) fluctuated on Thursday, mostly trapped in a narrow range but faltering against some of its more risk-sensitive peers, following the release of the UK Spring Budget.

On Wednesday, UK Chancellor Jeremy Hunt delivered his Spring Budget, where he announced a number of pre-election tax cuts designed to jumpstart the UK economy following a period of dismal growth.

However, an accompanying forecast from the Office for Budget Responsibility (OBR) stated that UK inflation is on track to fall below 2% within the next few months, which in turn bolstered upcoming Bank of England (BoE) interest rate cut bets and undermined GBP exchange rates.

As markets digested that latest Budget material, financial worries surrounding the Chancellors remaining ‘wiggle room’ further limited Sterling’s movement.

Torsten Bell, Chief Executive of the Resolution Foundation, warned: ‘The £19 billion of cuts to unprotected public services after the next election are three-quarters the size of those delivered in the early 2010s. The idea that such cuts can be delivered in the face of already faltering public services is a fiscal fiction.’

The combination of renewed BoE rate cut bets along with fiscal concerns over the latest Budget material muted GBP exchange rates on Thursday.

GBP/NZD Exchange Rate Forecast: Data Lull to infuse Volatility in GBP and NZD?

Looking ahead, the primary driver for the Pound New Zealand Dollar exchange rate on Friday will likely be market sentiment.

With a significant lack of data for both the UK and New Zealand scheduled for the remainder of the week, it is likely the pair will trade on risk dynamics alone.

Should Thursday’s positive trading conditions prevail to the end of the week, NZD exchange rates could continue to rise.

Turning to the Pound, the upcoming lull in data releases may leave GBP investors speculating on upcoming interest rate cuts, and in turn dent Sterling’s trade.