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New Zealand Dollars to Pounds at 1-Month High, as RBNZ Holds

Market CommentaryNew Zealand Dollars to Pounds at 1-Month High, as RBNZ Holds
New Zealand Dollars to Pounds at 1-Month High, as RBNZ Holds
New Zealand Dollars to Pounds.

The New Zealand dollars to pounds interbank exchange rate has hit 0.4987 today. This is its strongest in one month, or since October 15th.

By comparison, back on October 16th, the so-called kiwi dollar was as weak as 0.4869 versus sterling. So it’s since risen by over one cent, or by 2.42%.

This could benefit you, because when you transfer money to the UK from New Zealand, you could get a higher pound total, compared to if you’d exchanged currencies in the last month.

In turn, this may make it more affordable for you, if you’re selling property abroad in New Zealand to repatriate the funds to the UK, or if you’re a New Zealander emigrating to the UK.

To stay up-to-date with the New Zealand dollars to pounds interbank exchange rate, visit Pure FX’s Rates & Tools page. Here, select ‘NZD’ (New Zealand Dollar) to ‘GBP’ (Great British Pound).

Also, to check what’s affecting the value of the kiwi dollar versus British sterling recently, go to our NZD to GBP Exchange Rate Updates page. Here, click on the latest article for the recent news.

One reason why the New Zealand dollar has hit this one-month high against the pound today is because the Reserve Bank of New Zealand (RBNZ) has unexpectedly held interest rates steady.

Another factor why the New Zealand dollar has gained in value versus sterling is because the UK’s labour market has softened in recent months, said official statistics released yesterday.

However, looking to the next few months, the New Zealand dollars to pounds interbank rate could be affected, if the RBNZ decides to cut New Zealand’s interest rates in future, as looks likely.

In addition, looking over the coming weeks, the NZD to GBP interbank exchange rate may be influenced, because the Conservative Party’s lead is rising, ahead of the UK’s election next month.

New Zealand Dollars to Pounds Hits 1-Month High, as RBNZ Unexpectedly Holds

As I mention, one reason why the New Zealand dollars to pounds interbank exchange rate has hit this one-month high today is because, last night, New Zealand’s central bank, the Reserve Bank of New Zealand (RBNZ) surprisingly held interest rates steady at 1.0%.

This caught many investors on the financial markets off guard, who’d forecast that the RBNZ would cut down to 0.75%, reports the NZ Herald.

The New Zealand dollar historically tends to strengthen when the RBNZ keeps interest rates higher, because this makes investing in NZD-denominated assets more profitable for the world’s money managers.

After all, with higher interest rates, investors get better returns on investment. In turn, this increases investors’ demand for the NZD, to buy these assets, thus lifting its value.

The RBNZ held interest rates steady at 1.0% last night, because according to the kiwi central bank’s accompanying press release, "economic developments since the August statement do not warrant a change to the already stimulatory monetary setting at this time.”

In particular, the RBNZ signalled New Zealand’s low unemployment, and inflation that’s within the 1-3% target range.

In addition, New Zealand’s central bank highlighted that, although the global economy has decelerated recently, “New Zealand's export commodity prices have been robust, underpinning a positive terms of trade".

This is to say that, New Zealand has been able to charge a good price for shipping its goods overseas, such as dairy and fruit, thus making up for slower global growth.

As a result, the RBNZ concluded yesterday that either cutting interest rates or staying put at 1%, "both actions were broadly consistent with the current [interest rate] projection."

However, as I say, the New Zealand central bank’s decision surprised most investors on the financial markets, who’d expected the RBNZ to continue to cut interest rates, in line with its minus 0.5% cut back in August.

According to Dominick Stephens, analyst with Westpac, "markets were shocked” by the RBNZ’s surprise optimistic decision. After all, New Zealand’s GDP (Gross Domestic Product) growth has softened recently, buffeted both the US/China trade war, and lower domestic demand.

So in turn, this has contributed to increase the value of the New Zealand dollar versus British sterling.

NZD to GBP Exchange Rate Gains, as UK Employment, Job Vacancies Fall

Moreover, another factor why the New Zealand dollars to pounds interbank exchange rate has hit this one-month high is because the UK’s labour market softened in September, according to official data from the Office for National Statistics (ONS) yesterday.

This suggests that the Brexit uncertainty is now starting to weigh down the UK’s until-recently buoyant jobs market.

To begin, UK unemployment surprisingly fell by 0.1% in the three months to September, to 3.8%, said the ONS on Tuesday. This was above financial market forecasts for UK joblessness to stay at 3.9%, and is a joint four-decade low.

This suggests that the UK jobs market remains in good shape for the most part, although this upbeat news was tempered by disappointments elsewhere.

In particular, UK employment fell by 58,000 over this period, beating economists’ expectations for a 94,000 drop, yet still the sharpest decline since 2015, according to The Guardian.

Also, UK job vacancies declined by 53,000 from August to October compared to a year ago, to 800,000 available positions. This was the fifth consecutive annual decline in work available, for Britons searching for employment.

In addition, UK wages excluding bonuses fell by 0.2% in the three months to September, to 3.6%. This was below economists’ predictions for salary increases to remain steady at 3.8%.

This remains well above the UK’s inflation of 1.7% in September, telling us that Britons’ living standards continue to increase. However, employers may now feel less willing to raise their workers’ pay packets.

Until recently, the UK’s job market has been a bright spot in the economy, what with the Brexit uncertainty. After all, even though we don’t yet know on what terms we’ll exit the EU, UK unemployment has consistently fallen, and wages have risen above inflation.

However, what with Brexit being extended for the second time, until January 31st, the UK job market now be turning less resilient.

According to Andrew Wishart, UK Economist with Capital Economics, this UK labour market data “was a mixed picture with pay growth also coming of the boil."

These disappointing statistics partly justify the Bank of England’s (BoE) recent suggestion that it may cut interest rates early next year, to 0.5%. In turn, when the UK jobs market eases, and the BoE cuts borrowing costs, this often weakens sterling.

New Zealand Dollar Versus Sterling May Be Affected, as RBNZ Could Cut in Future

However, looking to the next few months, the New Zealand dollars to pounds interbank exchange rate might be affected, because the RBNZ could still reduce New Zealand’s borrowing costs, sometime in 2020.

In fact, at yesterday’s interest rate decision, New Zealand’s central bank left the door open to such a cut, while many financial market investors expect the RBNZ to do so.

To start with, even though the Reserve Bank held interest rates at 1.0% on Tuesday, the RBNZ ended its accompanying press release with the sentence: "We will add further monetary stimulus if needed."

So this is a clear signal that New Zealand’s central bank is prepared to reduce borrowing costs further in coming months, if New Zealand’s economic circumstances warrant such a cut.

Furthermore, many money managers on the financial markets think that the RBNZ is being too optimistic by keeping interest rates at 1.0% yesterday.

After all, following the Reserve Bank’s decision on Tuesday, credit conditions in New Zealand tightened. This means that New Zealanders may pay more on their mortgages, and businesses on their loans, thus slowing economic growth.

In turn, if New Zealand’s GDP growth slows too far, this may oblige the Reserve Bank to lower interest rates in future. So paradoxically, the RBNZ’s staying on hold this week could compel it to cut in future.

What’s more, the financial markets still predict that New Zealand’s borrowing costs will decline by 0.5% in the early months of 2020, down to a new all-time bottom of just 0.5%.

For example, Nick Tuffley, Chief Economist at ASB, says that: “the RBNZ has yet to factor in the economic impact of its impending bank capital increases, for which we expect a bigger economic impact than the RBNZ."

With this in mind, New Zealand’s central bank could still reduce borrowing costs early next year. This could influence the value of the New Zealand dollar.

Kiwi Dollar to Sterling Rate Could Be Influenced, as Tories Increase Poll Lead

Moreover, looking to the next few weeks, another factor that might affect the value of the New Zealand dollars to pounds interbank exchange rate is the fact that, according to the latest opinion polls, the Conservative Party has increased its lead, ahead of the UK’s December 12th general election.

It's thought that if one single party wins the election, this will increase the UK’s political and economic stability.

According to respected pollsters YouGov’s newest survey, the Tories are up 3% from the last November 8th poll, to 42%, reports Reuters.

Meanwhile, the Labour Party has gained 2%, to 28%, the Liberal Democrats are down 2%, to 15%, while support for Nigel Farage’s Brexit Party has fallen 6%, to 4%. So the Conservatives’ lead over its nearest opposition has increased, up to 14%.

Traditionally, a 10% poll lead has been enough to grant the winning political party a majority in the House of Commons, to form a stable government.

So if this survey is accurate, the winning party could approve their form of Brexit without relying on opposition MPs, get on with negotiating the UK’s future trade deal with the EU, and turn to the UK’s domestic agenda, such as schools and hospitals.

In general, the financial markets like it when it looks like there’ll be a stable, majority government, because the world’s investors dislike uncertainty. After all, this makes it tougher for them to predict how an economy may perform in future, which means they’re less able to accurately forecast their returns on investment.

So a clear win for one party may affect sterling, looking to next month’s general election.

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or Contact Us.

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