The Pound fell lower against the New Zealand Dollar (GBP/NZD) on the news that UK inflation had fallen below expectations on Tuesday, before clawing back losses and climbing once again. The release showed inflation stagnated at 3.0% in October on the year, below analysts’ forecasts of 3.1%, meaning the Bank of England is less likely to increase interest rates again in the near future.
Higher interest rates can often translate into a higher currency as the nation is likely to attract extra inflows of foreign capital from investors across the globe who can earn higher rates of interest on their funds.
However, despite an initial dip, Sterling was able to climb against the New Zealand Dollar over political concerns in the Trans-Tasman nation. The recent election has caused some NZD exchange rate instability as investors shy away from political uncertainty and change. The New Zealand election yielded no clear winner, meaning a coalition had to be formed. In a surprise move, the Labour party ended up being successful in coalition negotiations and has taken the helm of politics.
The Kiwi Dollar has experienced a recent downtrend on concerns over policies the new Labour government is bringing in, which could implicate the Reserve Bank of New Zealand (RBNZ). The new rules could mean that the RBNZ holds responsibility for the unemployment and inflation rates, meaning it would have to tailor its monetary policy stance with these factors in mind. This could translate into lower interest rates for longer – something investors aren’t keen on when searching for higher yields.
Additionally adding pressure to the Kiwi Dollar is Chinese data. As New Zealand’s largest trading partner, data from China can impact the antipodean commodity currency significantly. Recent data has seen a slowdown in industrial production and retail sales, suggesting that slowing expansion could result in lesser demand for commodities, which could be bad news for the NZD exchange rate.
The New Zealand Dollar to Pound Sterling (NZD/GBP) exchange rate is currently trending in the region of 0.5250. The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate is residing at levels of 1.9044.