The pound to New Zealand dollar interbank exchange rate stands at 1.9230 at the time of writing, roughly where sterling began this week against the so-called kiwi.
This indicates that, in spite of the volatile Brexit situation, Britain’s currency has managed to maintain its value versus its New Zealand counterpart, unlike against many other major currencies.
A first reason why the New Zealand dollar has failed to capitalise on sterling’s Brexit-related negative bias is because of the USA’s and China’s trade dispute.
Like Australia, New Zealand trades heavily with both America and China, so the rising tariffs and tensions reduce New Zealand’s opportunities to sell its goods abroad. These include kiwi fruit and other agricultural goods, timber, beef and especially diary products. In turn, as New Zealand exports less, this tends to decelerate New Zealand’s economic growth.
In addition, unlike other economies that are also subject to the effects of the trade war, such as Germany, Australia or Canada, the Reserve Bank of New Zealand (RBNZ) recently cut interest rates well beyond other central banks.
To be specific, earlier this month the RBNZ slashed interest rates by -0.5%, to 1.0%, an all-time low, beyond the USA’s or Australia’s recent rate cuts. This represents a clear reduction in the return of interest for investing in New Zealand-denominated assets, so is also contributing to weaken the kiwi dollar. Looking ahead, the RBNZ looks set to keep interest rates at record lows well into the future.
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