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New Zealand Dollars to Pounds Hits 9-Week High, on NZ Budget

Market CommentaryNew Zealand Dollars to Pounds Hits 9-Week High, on NZ Budget
New Zealand Dollars to Pounds Hits 9-Week High, on NZ Budget
New Zealand Dollars to Pounds.

Are you a New Zealand citizen, thinking of emigrating to the UK? Alternatively, are you a Brit living in New Zealand, and planning to sell your property abroad to return to Great Britain?

If so, before you move to the UK, or for when you sell your New Zealand home, you might need to transfer money to the UK.

If this is the case, you may find it helpful to know that the New Zealand dollars to pounds interbank exchange rate has hit 0.5182 today. This is the NZD's strongest versus the GBP in nine weeks, or since April 2nd.

By comparison, back on May 6th, the New Zealand dollar was as weak as 0.5034 versus British sterling. So in the four weeks since then, New Zealand's currency has risen by close to +1.5 cents against the pound, or by +2.94%.

To put this into context for you, at today's interbank exchange rate of 0.5182, NZ$250,000 would be worth £129,550. By contrast, at the interbank exchange rate on May 6th of 0.5034, NZ$250,000 would have been worth just £125,850.

So as the exchange rate has risen, for the same New Zealand dollar amount, that's a rise in the pound total of +£3,700.

You might find this helpful to know for when you transfer money to the UK from New Zealand.

This is because, when you exchange New Zealand dollars for pounds, you could now get a higher British sterling total in your UK bank account. This is compared to if you'd transferred money abroad in the recent past.

You can keep track of the New Zealand dollars to pounds interbank exchange rate on Pure FX's NZD to GBP Exchange Rate Updates page.

A first reason why the New Zealand dollar exchange rates versus the pound sterling have reached this 9-week high is because New Zealand's government has increased its spending, at its annual budget. This may foster New Zealand's economic growth.

However, looking ahead, New Zealand business confidence remains lower, and this may affect the value of the NZD versus the GBP.

Let's look more closely at these factors that have influenced the New Zealand dollar against the pound recently. You might like to bear these in mind, ahead of when you transfer money to the UK.

NZD to GBP Rises, as New Zealand Government Lifts Spending

A partial explanation why the New Zealand dollar has touched this 9-week high versus the pound is because New Zealand's government has announced that it will increase its spending, at its latest annual budget.

In turn, it's forecast that this will accelerate New Zealand's GDP (Gross Domestic Product) growth, in the coming months and years.

Last Thursday 30th May, New Zealand's Finance Minister Grant Robertson revealed the government's yearly budget. Here, Mr. Robertson announced NZ$15.2 billion of new operating spending over the next five years, up 2024, and NZ$10.4 billion of capital investment.

However, even with this extra spending, New Zealand's national debt will remain low, at around 20% of GDP, reports the NZ Herald newspaper.

Mr. Robertson's announcement has strengthened the NZD, because when New Zealand's government spends more, this fosters faster economic growth.

In particular, when the government spends, this acts as a stimulus that spreads through the economy, to businesses and consumers. So Mr. Robertson's announcement could make New Zealanders feel richer, in the future.

According to economists following the Finance Minister's announcement, "All up, the Treasury's budget update forecasts show the government's books are expected to remain in good shape over the next four years.”

“This means smaller surpluses and higher debt, but all within, or at, the limits of the government's fiscal targets." This has helped lift the New Zealand dollar.

Weak NZ Business Confidence May Affect Value of New Zealand Dollar

However, looking forward, New Zealand's ongoing low business confidence might affect the New Zealand dollars to pounds interbank exchange.

This is because, when New Zealand's businesses feel downbeat, they're likelier not to invest, or hire new employees. In turn, this might weigh down New Zealand's economic growth in future.

According to ANZ's recent New Zealand Business Confidence survey for May 2019, optimism among kiwi firms was -32. This is above April's figure of -37.5, as well as financial markets' forecasts for a further decline to -42.7, according to financial news source Reuters.

However, this remains deep in negative territory, telling us that New Zealand's businesses remain downbeat about the outlook.

In particular, it's now predicted that New Zealand's GDP will expand by just +2.1% this year, down from previous forecasts for +2.9%.

"We expect weaker growth and inflation than the Treasury. We would cite capacity constraints and low business confidence as key limiting factors likely to cap growth in 2019-20 and subsequent years," says ABS economist Nathan Penny.

Also, it's forecast that New Zealand's inflation could fall further too. Inflation expectations now stand at 1.81% for 2019, down from 2.04% previously.

This is below the Reserve Bank of New Zealand's target band, and may incentivise the central bank to cut interest rates further, below their current all-time low of 1.5%. In turn, this might influence the New Zealand dollar.

NZD Could be Influenced if China Bans Rare Earth Mineral Exports

Also, looking to the future, the New Zealand dollars to pounds interbank exchange rate might be influenced if China bans rare earth mineral exports to the USA.

Recently, China threatened to ban shipments of the important commodities to America, as part of the two countries' escalating trade war. In turn, this might affect New Zealand's economic outlook too.

Last week, China announced that it might ban exports of rare earth minerals to the United States. These minerals are vital for high-tech manufacturing, such as smart phones and electric cars.

So if China bans these exports, it might badly affect well-known corporations like Google or Apple. At present, 80% of the USA's rare earth minerals come from China.

To be specific, China's National Development and Reform Commission said that: "If anyone wants to use the products made from rare earths exported by China to contain and suppress the development of China, I think the people of China will not be happy."

Meanwhile, China's People's Daily newspaper added: "Don't say we didn't warn you."

If China prohibits the sale of rare earth minerals to the USA, the two countries' trade war will further intensify. In turn, this could affect third-party countries who trade closely with both the USA and China, such as New Zealand.

So if China goes ahead with this ban, both America might lose out, and New Zealand too. This may influence the value of the NZD for when you buy British pounds.

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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 email peter.lavelle@purefx.co.uk.

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