Pound New Zealand Dollar Exchange Rate News: GBP/NZD Soured as RBNZ Raised Interest Rates by 50bps

February 22, 2023 - Written by John Cameron

STORY LINK Pound New Zealand Dollar Exchange Rate News: GBP/NZD Soured as RBNZ Raised Interest Rates by 50bps

New Zealand Dollar (NZD) Buoyed as RBNZ Hikes Rates by 50bps

The New Zealand Dollar (NZD) found a surge in demand on Wednesday in the wake of the Reserve Bank of New Zealand (RBNZ) raising the interest rate to 4.75%, the highest level since January 2009. The move was the 10th consecutive raise, the most aggressive tightening cycle since 1999.

With inflation remaining stubbornly high, the central bank opted to raise rates by another 50bps. The board also added that employment remained beyond its sustainable level, and that future rate hikes are in the pipeline. But concerns still linger over the New Zealand economy. With forecasts of the economy to shrink in Q2 2023, and the ongoing impact of Cyclone Gabrielle, weighed on the ‘Kiwi’.

Despite the 50bps rate hike was all but baked in, ASB Senior Economist Chris Tennent-Brown observed it was still a pragmatic approach from the RBNZ. He added:

‘It makes an interesting point that higher interest rates will free up capacity in the economy to help where needed rather than a shotgun approach of getting lower interest rates into the economy that could create more problems than we think.’

Pound (GBP) Undermined by Brexit Jitters

Meanwhile, the Pound (GBP) struggled for demand as the previous days rally faded away to domestic woes. Despite PMIs surprising markets as they highlighted significantly improving business activity, optimism surrounding the Northern Ireland protocol deal faded.

With mounting criticism, some from within his own party, Prime Minister Rishi Sunak is facing an uphill struggle to get the deal over the line. Sunak had travelled to Belfast in order to expedite the process, and hoped to present a revised deal before parliament this week, but roadblocks look to derail that sentiment. Discontent from the Democratic Unionist party and some Conservatives has left Sunak in a compromising position; to appear weak before his own party or to appease the EU.

GBP/NZD Exchange Rate Forecast: BoE Speeches to Boost the Pound?

Looking ahead, the Pound New Zealand Dollar exchange rate could see further fluctuations, and possibly a respite for Sterling, when speeches are delivered by Bank of England (BoE) members on Thursday. If hawkish tones are adopted, and the need for the central bank to continue raising interest rates to tackle inflation, Sterling could climb.

Meanwhile, as investors continue to digest the hawkish rate hike from the RBNZ, the New Zealand Dollar could maintain its strength. However, with a moderately cautious speech from RBNZ Governor Adrian Orr highlighting the tricky economic outlook for New Zealand, demand could waver.

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TAGS: Pound New Zealand Dollar Forecasts