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New Zealand Dollars to Pounds Rate Nears Highest in 8 Months

Market CommentaryNew Zealand Dollars to Pounds Rate Nears Highest in 8 Months
New Zealand Dollars to Pounds Rate Nears Highest in 8 Months
New Zealand Dollars to Pounds.

The New Zealand dollars to pounds interbank exchange rate has reached 0.5330 today. This is just -0.2% below its highest since December 21st 2018, or close to eight months.

By contrast, back on May 6th this year, the New Zealand dollar was as weak as 0.5024 against British sterling. So it's since strengthened by over three cents, or by +6.09%.

This may benefit you, if you're a British citizen selling property abroad in New Zealand. This is because, when your send funds to the UK, you might get a higher pound total than earlier in 2019.

Also, this could interest you, if you're a New Zealand business owner making international payments to buy UK products. This is because the higher exchange rate might cut your import costs.

In turn, this would make it more profitable to transfer the funds of your New Zealand property sale to the UK, or cut the costs for your New Zealand business of importing British products.

To keep up-to-date with the New Zealand dollars to pounds interbank exchange rate, visit Pure FX's Rates & Tools page. Here, select 'NZD' to 'GBP' to see the last week's exchange rates.

To find out what's influencing the value of the New Zealand dollar against the pound, visit our NZD to GBP Exchange Rate Updates page. Click on the latest article to see what's affecting the rate.

A first factor why the New Zealand dollar has neared this eight-month high versus the pound is because the Bank of England may cut interest rates this year, said a policymaker this week.

A second reason why the NZD to GBP interbank exchange rate has risen is because the Federal Reserve looks likelier to reduce interest rates this year too, thereby favouring New Zealand.

However, looking forward, the New Zealand dollar to pounds interbank exchange rate might be influenced, if the Reserve Bank of New Zealand cuts interest rates in 2019, as forecast.

Let's take a closer look at these factors that have contributed to lift the New Zealand dollar to this eight-month high versus the pound. This may help you to decide when to transfer money abroad.

New Zealand Dollars to Pounds Rate Rises, as BoE Likelier to Cut

As I mention, a first contributing factor why the New Zealand dollars to pounds interbank exchange rate has hit this eight-month high is because a Bank of England (BoE) policymaker this week suggested that the UK's central bank could cut interest rates later this year.

In turn, this would suggest that the UK's economy needs greater monetary support to prosper.

In a speech on Wednesday 10th July, central bank policymaker Silvana Tenreyro suggested that the BoE might need to reduce UK interest rates below their current 0.75%. This is for several reasons.

First and forecast, Ms. Tenreyro said that she doesn't foresee any pressure for the Old Lady of Threadneedle Street, as the BoE is affectionately called, to raise rates, looking ahead.

In addition, the BoE executive added that she expects UK inflation to slip below the BoE's 2.0% target in the coming months.

Also, Ms. Tenreyro said that the weaker global economic growth outlook, and in particular the USA's trade disputes, remain a course for concern. Furthermore, there's also the continuing uncertainty about Brexit, and how the UK will exit the EU.

Ms. Tenreyro speech on Wednesday continues a theme established by BoE Governor Mark Carney last Tuesday 2nd July.

Then, Mr. Carney warned that UK interest rates might also need to be cut, to provide support for the UK economy, given the uncertain global outlook, plus Brexit. So it looks like the UK's central bank is trying to prepare households and markets for a rate cut.

Ms. Tenreyro's speech has weakened the pound sterling, first because up until recently, the Bank of England looked optimistic about the UK's economic outlook. There was talk that the BoE could even hike interest rates, up to 1.0%.

This compared to other major central banks, like the US Federal Reserve and European Central Bank, who have been talking about lowering borrowing costs.

The BoE executive's speech has also dragged down sterling, because when the UK's central bank cuts interest rates, this makes investing in British assets less profitable.

In turn, this discourages the world's money managers from placing their funds in the UK, if they expect a lower return on investment. Then, this lowers demand for the pound among investors, which cuts its value.

NZD to GBP Exchange Rate Rises, as Fed's Powell Talks Rate Cuts

In addition, another reason why the New Zealand dollars to pounds interbank exchange rate has reached this eight-month high is because, earlier this week, the Chairman of the Federal Reserve, Jerome Powell, cemented expectations that the Fed will soon cut US interest rates.

This would make investing in the USA less profitable, encouraging investors towards alternatives like New Zealand.

Speaking to Congress this Wednesday 10th July, Mr. Powell suggested that it's likely that America's central bank will cut interest rates as soon as this month, below their current 2.25%-2.5%.

The Fed could do this, first because inflation in the United States "remains muted", below the central bank's 2.0% target, while there's a risk of "persistent" weakness in price pressures.

Mr. Powell also suggested that the USA needs greater monetary support to prosper, to alleviate several risks to America's economy.

These includes US President Donald Trump's trade disputes with China, Mexico and the Eurozone, Brexit, and the possibility that Congress might not raise America's debt limit in coming weeks. This would oblige the US Federal Government to shut down.

Moreover, the head of the Fed added that the United States might cut interest rates, to "guarantee" the continued expansion of America's economy.

This is because, when the USA cuts interest rates, this makes it cheaper for businesses and households to take out loans. In turn, this encourages companies to borrow to invest, and for households to buy mortgages, or shop more.

The Federal Reserve looks likely to reduce interest rates in July, because at the Fed's June meeting, seven of the Federal Open Market Committee's (FOMC) 17 members indicated that they see the need to lower borrowing costs.

This suggests that a growing number of Fed policymakers want to reduce interest rates, and Mr. Powell's comments this week seemingly confirm that.

However, while lower interest rates might benefit the US economy, they're negative for the US dollar. This is because lower interest rates encourage investors to take money out of America, and place it in other countries, where interest rates are stable.

For example, New Zealand's interest rates currently stand at a healthy 1.5%, still a good rate of return. So Mr. Powell's remarks have contributed to strengthen the New Zealand dollar.

New Zealand Dollar Versus Pound May Be Affected, if RBNZ Cuts

However, looking forward, the New Zealand dollars to pounds interbank exchange rate might be affected, if the Reserve Bank of New Zealand (RBNZ) cuts interest rates, as forecast.

According to financial markets, there's a 73% chance that the New Zealand's central bank might reduce borrowing costs as soon as August, while a September rate cut is fully priced in.

It's predicted that the RBNZ will cut interest rates, because New Zealand's inflation has repeatedly arrived below the central bank's 2-3% target range.

For example, New Zealand's inflation for Q2 2019, between April and June, is due next Tuesday July 16th, and is predicted at just 0.6%. This points to subdued economic activity in New Zealand, putting a lid on higher price pressures.

As a result, it's forecast that the RBNZ will cut interest rates, to stimulate New Zealand's economy activity. After all, if it's cheaper to take out loans, businesses might invest in new equipment, or hire more staff.

This could accelerate New Zealand's economic growth. However, as we've seen earlier in this article, lower interest rates may affect the value of the New Zealand dollar too.

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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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