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Pound to New Zealand Dollars Hits 7-Week High, as RBNZ Cuts

Market CommentaryPound to New Zealand Dollars Hits 7-Week High, as RBNZ Cuts
Pound to New Zealand Dollars Hits 7-Week High, as RBNZ Cuts

The pound to New Zealand dollars interbank exchange rate stands at 1.9016 today at the time of writing. This is sterling’s strongest versus the New Zealand since June 26th, or seven weeks.

By comparison, back on July 30th, last week, the pound was as weak as 1.8296 versus the New Zealand dollar. So it’s since risen by +3.93%, or by over seven cents.

This could benefit you, if you’re a Briton planning on buying property abroad in New Zealand, or because you’re emigrating to Wellington or Auckland with your family for work.

This is because, when you transfer money to your New Zealand bank account, you might now get a higher New Zealand dollar total, compared to during the last seven weeks.

In turn, this could make it more affordable for you to buy a New Zealand property, or cut your costs for emigrating to New Zealand, while you ship your belongings, buy furniture and settle in.

To keep up-to-date with the pound to New Zealand dollars interbank exchange rate, visit Pure FX’s Rates & Tools page. Here, simply select ‘GBP’ to ‘NZD’ from the currency buttons.

Also, to see what’s influencing the value of sterling against the New Zealand dollar lately, visit our GBP to NZD Exchange Rate Updates page. Here, just click on the newest article.

A first reason why the pound has gained versus the New Zealand dollar is because, yesterday, the Reserve Bank of New Zealand unexpectedly cut interest rates to a new all-time low of 1.0%.

A second factor why sterling has strengthened against the so-called kiwi dollar is because New Zealand’s business confidence is falling, says a closely-watched new survey by ANZ Bank.

However, looking forward, the value of the pound against the New Zealand dollar may be affected, because New Zealand’s unemployment rate surprisingly hit an 11-year low over the Spring.

In addition, looking ahead, the pound to New Zealand dollars interbank exchange rate could also be influenced, by the growing possibility that the UK will exit the EU with a ‘No Deal’ Brexit.

Please find below a further explanation of these factors that have lifted the pound versus the New Zealand dollar. This could be useful for you, for when you transfer money to New Zealand.

Pound to New Zealand Dollars Hits 7-Week High, as RBNZ Cuts Interest Rates

As I mention, a first reason why the pound to New Zealand dollars interbank exchange rate has reached this seven-week high is because, yesterday, the Reserve Bank of New Zealand (RBNZ) cut interest rates to a new all-time low of 1.00%.

This signals that New Zealand needs greater monetary support to prosper, and makes investing in NZD-denominated assets less profitable.

On Tuesday 6th August 2019, New Zealand’s central bank unexpectedly cut interest rates by -0.5%, to 1.0%, a historical low. This surprised the financial markets, who’d been expecting the RBNZ to reduce interest rates, but by only -0.25%.

In addition, the RBNZ’s Governor, Adrian Orr, said that it’s possible that New Zealand’s central bank could cut interest rates further in future too.

Mr. Orr explained that there were several reasons for the RBNZ’s decision to reduce borrowing costs yesterday.

First, New Zealand’s inflation has stood well below the central bank’s 2%-3% target range for some time, and looks unlikely to increase in the near future. This contributed to convince the RBNZ to cut interest rates, to try and stimulate kiwi price pressures to rise.

Second, the RBNZ’s Governor said that the global economic outlook was worsening, driven by the USA’s and China’s ongoing trade dispute. This is weighing heavily on international trade, including exports and commodity prices, reports The Straits Times newspaper.

As a small, relatively isolated nation, New Zealand depends heavily on exports and high commodity prices. So the trade war may slow New Zealand’s economy.

For example, hours before the Reserve Bank’s decision, reports emerged that America’s and China’s trade war has grown more intense. To be specific, China has let its currency, the yuan, weaken below the psychologically-important level of 7.00 to the US dollar.

In response, US President Donald Trump has labelled Beijing a “currency manipulators” for the first time. This may have prompted the RBNZ to cut, thereby devaluing the New Zealand dollar.

GBP to NZD Strengthens, as RBNZ May “Easily Use Negative Interest Rates”

In addition, Governor Orr highlighted that the RBNZ is ready to cut interest rates further, or even to take extraordinary steps, to shield New Zealand’s economy from the trade dispute.

The RBNZ chief said yesterday that: “it’s easily within the realms of possibility that we might have to use negative interest rates”, which is to say, cut borrowing costs to below 0.0%, according to The NZ Herald newspaper.

Mr. Orr added that “today’s decision doesn’t rule out any future action”, and that the Reserve Bank is “well advanced” in preparing unconventional monetary policy measures.

These new tools include negative interest rates, asset purchases, also known as quantitative easing, plus forward guidance to tell the financial markets which way interest rates could go next.

Also, the Reserve Bank’s Governor said that they won’t be “negligent” about preparing these extraordinary measures.

This has weakened the New Zealand dollar, first because, while the financial markets expected the RBNZ to cut interest rates on Tuesday, they’d forecast only a -0.25% cut. So this suggests that the RBNZ thinks that New Zealand’s economy needs greater support.

The central bank’s decision has also weakened the New Zealand dollar, because Mr. Orr repeatedly highlighted that the RBNZ is prepared to cut interest rates further, even below 0.0%.

This suggests that the Reserve Bank is prepared to whatever it takes to protect New Zealand’s economy from America’s and China’s trade war, even while limiting New Zealand’s banking sector’s profitability.

Lastly, the RBNZ’s reducing borrowing costs on Tuesday has lowered the value of the New Zealand dollar, because lower interest rates make investing in NZD-denominated assets less profitable.

This is because, when the RBNZ cuts interest rates, the world’s money managers get lower returns for investing in New Zealand. This reduces demand for the New Zealand dollar, and so its value.

Sterling Gains Against Kiwi Dollar, as New Zealand Business Confidence Falls

In addition, another reason why the pound to New Zealand dollars interbank exchange rate has reached this seven-week high is because New Zealand’s business confidence has fallen further, according to a respected new survey recently.

This could contribute to weaken New Zealand’s economic growth in the second half of 2019, and convince the RBNZ to cut interest rates again.

According to ANZ Bank’s latest monthly survey of New Zealand business confidence, released last Wednesday 31st July, sentiment among kiwi firms fell to -44.3 in July.

This was well below the financial markets’ forecasts for -34.9, as well as June’s figure of -38.1. Also, ANZ’s activity outlook poll eased to +5.0% last month, below June’s +8.3%, as well as economists’ hopes for +8.0%.

When New Zealand business tell ANZ that they’re feeling less confident, it means that they expect activity to weaken over the next 12 months.

In ANZ’s report of these downbeat statistics, they titled the data “grim”, and reported that: "firms are reporting acute margin pressure and employment intentions are consistent with firms cutting staff".

Meanwhile, economist Shamubeel Eaqub told NewsHub.co.nz that New Zealand’s economy is "slowing from a good to slow pace".

New Zealand’s business confidence is falling, in part because of the USA’s and China’s intensifying trade war.

As I mention above, the world’s two largest economies imposing tariffs on each other is weakening international trade and commodity prices, which New Zealand businesses depend on. So as exports slow and commodities become cheaper, New Zealand firms grow pessimistic.

Last Tuesday 30th July, New Zealand’s Prime Minister, Jacinda Ardern, told Parliament that: "New Zealand, like other countries, is not going to be immune to the impacts of the trade war that is currently underway between the US and China."

Mrs. Ardern added that “we need to be mindful about diversifying our exports”. Although in the meantime, New Zealand’s businesses feel less confident, so this has weakened the New Zealand dollar.

Pound to New Zealand Dollars May Be Affected, as NZ Unemployment Falls

However, looking forward, the pound to New Zealand dollars interbank exchange rate could be affected, by the fact that New Zealand’s unemployment rate unexpectedly fell in Q2, said official statistics earlier this week.

This could alleviate concerns about New Zealand’s economy, and help convince the Reserve Bank of New Zealand to keep interest rates at their new low of 1.00%.

According to government agency Stats NZ this Monday 5th August, New Zealand’s unemployment rate surprisingly fell by -0.3% to 3.9% in Q2 2019, between April and June.

This easily beat economists’ forecasts for New Zealand joblessness to rise by +0.1%, up to 4.3%. This is New Zealand’s lowest unemployment rate since June 2008, over 11 years ago, during the financial crash.

In particular, -4,000 fewer men were unemployed in New Zealand over the Spring. The total number of kiwi citizens now looking for work now stands at just 109,000.

According to Stats NZ’s Senior Manager Sean Broughton, the unemployment rate has "largely been tracking down" since late 2012, "towards levels seen before the global financial crisis in 2008".

Moreover, New Zealand’s wage growth accelerated in Q2 2019 too, said Stats NZ on Monday. To be specific, the NZ Labour Cost Index rose by +2.2% between April and June year-on-year.

This was ahead of economists’ predictions for salary increases of +2.1%, as well as January to March’s figure of +2.0%. So this tells us New Zealanders are growing wealthier, more quickly.

It’s thought that New Zealand’s wages are rising more quickly, because Jacinda Ardern’s Labour government raised the minimum wage in April.

In particular, the Auckland central government increased the minimum wage from $16.50 per hour to $17.70 per hour. Stats NZ reported that this is lifting salaries, especially in the retail sector, and accommodation and food service sector.

These positive New Zealand unemployment and wage growth statistics could affect the New Zealand dollar, looking ahead, because they bode well for New Zealand’s GDP (Gross Domestic Product) growth.

In particular, they tell us that New Zealand businesses continue to hire employees and pay higher salaries, even though the USA’s and China’s trade war is intensifying.

GBP Vs NZD Could Be Influenced, as Ireland’s PM Says ‘No Deal’ Brexit “More Likely”

Furthermore, looking forward, the pound to New Zealand dollars interbank exchange rate could also be influenced, because today Ireland’s Prime Minister, Leo Varadkar, has said that it’s likelier that there’ll be a ‘No Deal’ Brexit.

Mr. Varadkar’s remarks have made the financial markets feel more concerned that the UK will exit the EU without a deal, by the extended deadline of October 31st.

Speaking today in Belfast, Mr. Varadkar said at a press conference that: "In terms of no deal, you know, as time goes on, yes ‘No Deal’ becomes more likely and that's why we've been preparing for it even since before the referendum took place,” reports Euro News.

Mr. Varadkar’s comments reflect the fact that the UK and EU are currently at stalemate about reaching a Brexit agreement.

The UK and EU are at stalemate, because new British Prime Minister Boris Johnson has said that he’ll agree a Brexit deal, only if the EU abandons the existing draft Withdrawal Agreement, including the much-debated Northern Ireland backstop.

However, the EU refuses to remove the backstop, in part to protect the terms of 1998’s Good Friday Agreement, which guarantees that there’s no hard border between Ireland and Northern Ireland.

As a result of this stalemate, the EU is increasingly facing up to the possibility that the UK might exit without a deal, by Halloween. For example, an EU official told the Financial Times recently that:

“The withdrawal agreement is unacceptable for the UK, and perhaps any form of Brexit is simply unmanageable in the Commons. So no deal follows logically.”

Meanwhile, Detlef Seif, the Brexit Spokesperson for German Chancellor Angela Merkel’s Christian Democrat Party, has said that: “No declaration by MPs, no decision of Parliament can stop Brexit, unless the exit date is formally delayed.”

So the EU is slowing recognising that, if Prime Minister Johnson wants a ‘No Deal’, Parliament may not be able to stop him.

In reply to the EU’s refusal to alter the draft Withdrawal Agreement, the UK’s Minister for No Deal Planning, Michael Gove, said this week that: “I am deeply saddened that the EU now seems to be refusing to negotiate with the UK.”

This further highlights the fact that the UK and EU are at stalemate, with the available time down to under three months, and running out. This could affect the value of sterling in future.

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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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