GBP/NZD Exchange Rate Falls on UK Lockdown Concerns and Stronger New Zealand Outlook
After weeks of strength in the Pound (GBP), the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate’s rally fell flat last week. While coronavirus lockdown jitters weigh on the Pound, the New Zealand Dollar (NZD) strengthens on New Zealand’s own outlook.
GBP/NZD opened last week at the level of 1.9165, and spent most of the week trending higher. Near the end of the week, GBP/NZD even touched on a high of 1.9400, the best level for the pair since November 2020.
However, GBP/NZD quickly plummeted from those highs at the end of the week and closed near its opening levels. Since markets reopened today, GBP/NZD has been trending narrowly around the region of 1.9167.
Investors are keeping an eye on the UK government’s reopening roadmap for the Pound outlook, but the New Zealand Dollar’s outlook may keep improving.
Pound (GBP) Exchange Rate Outlook Hit by Concerns of Gradual Restriction Easing
In recent weeks, the Pound had been surging on speculation that Britain’s economy would be able to quickly rebound from the coronavirus pandemic in the coming months.
However, today’s reports that lockdown may be eased over a longer period of time has put a dampener on those hopes. This has also dampened the Pound’s bullishness today.
Reports say that UK Prime Minister Boris Johnson will reopen different parts of England’s economy in five week gaps. According to Yohay Elam, Analyst at FXStreet, it is much slower than markets had been expecting:
‘According to the BBC’s Laura Kuenssberg, a five-week gap will separate the lockdown lifting steps – a snail’s pace in comparison to expectations’
New Zealand Dollar (NZD) Exchange Rate Outlook Rises after S&P Upgrades New Zealand Rating
The New Zealand Dollar continues to be one of the most appealing major currencies on the market, reflecting broad optimism over New Zealand’s handling of the coronavirus pandemic.
New Zealand has consistently remained on top of the pandemic and has been able to keep most of its economy, barring tourism, performing strongly as a result of minimal local lockdowns.
This is among the reasons that credit rating agency S&P upgraded its rating for New Zealand to AA+. S&P said:
‘New Zealand is recovering quicker than most advanced economies because the country has been able to contain the spread of COVID-19 better than most others. This provides us with better clarity over the extent of the pandemic’s damage to the government’s balance sheet. We now believe that the government’s credit metrics can withstand potential damage from negative shocks to the economy, including a possible weakening of the real estate market, and its fiscal position at the ‘AA+’ rating level.’
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate May See Further Losses
The Pound to New Zealand Dollar exchange rate may be in for further losses in the coming sessions, depending on how markets digest the UK government’s roadmap for easing lockdown restrictions.
If the UK government is more optimistic on reopening the economy than expected it could lead to fresh advances and GBP/NZD could near its best levels again.
However, if the UK government’s plans continue to be more cautious than markets hoped, this could weigh on the Pound’s potential for gains.
What’s more, some analysts believe the Pound’s strong streak is likely to be running out of steam overall. According to Ned Rumpeltin, Head of European Currency Strategy at TD Securities:
‘I wouldn’t necessarily be a fresh buyer of Pound at these levels. The risk-reward is increasingly skewed towards a correction at this stage.’
That aside, key data will likely influence the Pound and New Zealand Dollar tomorrow. New Zealand retail sales results from Q4 2020 and UK job market data from December are both due.
Of course, Wednesday’s upcoming Reserve Bank of New Zealand (RBNZ) policy decision has potential to influence the Pound to New Zealand Dollar (GBP/NZD) exchange rate outlook as well.
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