The New Zealand dollar has been weaker lately as global fears of a slower global economy rise, which would only hurt the Kiwi economy. However, overnight the latest Reserve Bank of New Zealand interest rate decision saw the Kiwi rise dramatically around 2%, as their slightly more upbeat tone went against the grain of most Central Banks.
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Whilst remaining in a fairly mixed pattern, where interest rates could easily be cut, it seems more likely that the next move will be an increase from the New Zealand Central Bank. The currency is seen as a barometer of global trade in the currency market, rising and falling on changing attitudes to risk sentiments.
In highlighting that global trade risks have increased, the RBNZ stated that this might increase inflationary pressures in New Zealand. The tool to combat this would be interest rate increases. This is similar to last year when despite the uncertainty of Brexit, the Bank of England raised interest rates to stop inflation rising too much from a weaker pound.
Yesterday, a speech by Mark Carney on the global economy saw him refer to a ‘new global order’ of more protectionist countries seeking to defend their own interests. Whilst the RBNZ comments have helped the Kiwi, it should be noted that this is a reflection of a response to more negative global conditions, and not a sign of a growing economy. Interestingly the RBNZ did actually lower their growth forecasts, further proving this point.
Important news ahead is the outcome from the trade war talks between the US and China which will dictate market sentiments of the Kiwi and other commodity currencies.
Mark Carney spoke yesterday on the global economy and his comments can be linked to the performance of this global currency. Carney shared a view that the Trade Wars and a Chinese economic slowdown are two major risks to the global economy.
GBPNZD levels are now below 1.90 following comments from the RBNZ and might well suffer as investors seek more reassurance over Brexit.
Carney highlighted the increasing risks of no-deal to sterling, indicating that rather than a fall in sterling benefitting the economy, it would harm wages, a key driver of growth in the UK.
Assuming that Brexit can be dealt with sooner rather than later and is of a more soft variety, attention on the pairing might be swung more by the trade wars and global trade. Brexit makes up an important part of the outlook on global trade and global conditions, but as a commodity based currency, the Kiwi reflects the more global view and is likely to react more from trade war news.
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