Central bank makes the New Zealand Dollar more expensive

Buying the New Zealand dollar, like most currencies of late, has been getting more and more expensive. A majority of these losses have been seen as a result of the fall-out from the UK’s decision to leave the EU. This puts the economic future of the UK at threat with talk of a recession potentially in early 2017. The Bank of England last week cut interest rates and raised their QE program in an effort to avoid such an event however that resulted in further GBPNZD falls, with GBPNZD now standing close to a 3 week low.

Over the last week there has also been optimistic dairy news which added to this situation by boosting the dairy-correlated NZD exchange rate.

Moving forward, I am of a view that the Pound is under considerable threat and will most likely lose further value as the true ramifications following the EU referendum are felt through the economy and the Pound’s value. The forecast for the UK pound seems to be rather dire. Tomorrow is such a day with further Inflation news and GDP figures being released which are both expected to continue to paint a poor picture for the UK’s future and will probably result in making the GBP/NZD more expensive to buy.

Reserve bank of New Zealand update

The Reserve Bank of New Zealand (RBNZ) last cut the key rate in March 2011 as a result of the earthquakes that killed 185 people. Its busiest period was following the global recession in 2008/09 when they made six cuts of half a percent in relatively quick succession.

Interest rates currently stand at 2.25% and is one of the highest among major markets. Generally the economy in New Zealand is performing quite well, despite the strains in the dairy sector. The next meeting by the RBNZ is scheduled for Thursday and there is building expectation that they too will cut their own interest rates.

Some say that a 0.5% reduction may be announced or indeed 0.25% and another later in the year. This reduction in the base level would also help narrow the interest rate differential with other major markets, particularly Australia. This in turn should make the currency more ‘stable’ and less open to large swings as carry trade positions demand impacts its value.

The governor, Graeme Wheeler, is expected to reduce the interest rate by either 25 or 50 basis points overnight on Thursday. This will have an impact on the value of the Kiwi, if he decides to cut by just 25 points the GBPNZD may get more expensive where as if a 50 cut is announced expect the NZD to get cheaper as a result.

There is also the real possibility that the market will price the potential event into the market through Thursday UK time and depending what is released, this price could well be the best seen for GBPNZD buyers. If you are in the market for New Zealand Dollars please make sure to contact us before Thursday to discuss this in more detail as this could impact your financial position.

If you would like to know more on how Thursdays interest rate decision by the RBNZ could impact your currency requirement, please call us on 01494 725 353.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.