GBP/NZD stabilizes after rising due to New Zealand’s economic woes


  • GBP/NZD is consolidating after a strong rally on the previous day. 
  • Acutely diverging interest rate expectations in the two countries is expected to support the Pound and GBP/NZD. 
  • The RBNZ is expected to slash rates at Christmas, whilst the Bank of England is not expected to lower them at all. 

GBP/NZD is trading back to where it opened, in the 2.1520s on Thursday, after rising over a third of a percent on the previous day. The pair is channeling modestly lower in what looks like a correction of the October rally. 

GBP/NZD Daily Chart 

Widely diverging expectations of the trajectory of interest rates in the UK and New Zealand suggest the odds favor more upside for GBP/NZD. This is because in global capital markets the flow of money tends to go towards currencies with higher interest rates, all other things being equal. 

Although both the central banks of the UK and New Zealand have set base interest rates at the same level of 4.75%, the Reserve Bank of New Zealand (RBNZ) is expected to reduce its interest rate more quickly than the Bank of England (BoE). Overall, this should benefit the Pound Sterling (GBP) and give GBP/NZD a lift. 

The divergence in interest rate expectations is most acute when it comes to the two central bank’s policy meetings in December. The RBNZ is expected to slash its cash rate by a minimum of 50 basis points (bps) (0.50%) – possibly even 75 bps – whilst the Bank of England (BoE) is not expected to cut its bank rate at all. This could mean that at the end of 2024, the RBNZ will have an interest rate of 4.25% whilst BoE’s will still be at 4.75%. This ought to further support flows into Sterling. 

The more negative economic outlook in New Zealand is the reason for economists expecting the RBNZ to cut its interest rates so aggressively in December. Lower interest rates tend to lead to more credit and, in theory, spending on growth creation activities.  

“With the New Zealand economy in a tailspin and inflation well on its way to target, we expect the RBNZ to keep cutting rates by 50 bps at its next two meetings. We expect rates to fall to 2.25% by end-2025, far lower than most anticipate,” says Toh Au Yu, Assistant Economist at Capital Economics. 

In the UK the outlook for the economy is not as bad, and recent UK headline inflation data beat expectations, suggesting even less chance of the BoE cutting interest rates in December. 

“UK inflation surprised to the upside, but services (inflation), (which rose) back up to 5.0%, was in line with the BoE forecast. The forecast in the last inflation report is for CPI to increase from the 2% target in 3Q24…(..).. An 8-1 vote by the MPC for no change in December looks certain,” says Kenneth Broux, Senior Strategist at Societe Generale.

 

 

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

XM
Account
7.2
Tools
9.2
Service
9.4
Trading
9.0
Trust
7.0
Experience
8.4
Read review
Moneta Markets
Account
7.4
Tools
6.6
Service
8.0
Trading
6.6
Trust
5.2
Experience
9.2
Read review
Trading Pro
Account
7.2
Tools
5.2
Service
6.6
Trading
8.0
Trust
5.0
Experience
7.0
Read review
Pepperstone
Account
8.2
Tools
8.2
Service
7.4
Trading
9.0
Trust
8.8
Experience
9.0
Read review
XM
Read review
Moneta Markets
Read review
Trading Pro
Read review
Pepperstone
Read review
Trading Pro
Read review
Pepperstone
Read review
XM
Read review
Moneta Markets
Read review
Trading Pro
Account
7.2
Tools
5.2
Service
6.6
Trading
8.0
Trust
5.0
Experience
7.0
Read review
Pepperstone
Account
8.2
Tools
8.2
Service
7.4
Trading
9.0
Trust
8.8
Experience
9.0
Read review
XM
Account
7.2
Tools
9.2
Service
9.4
Trading
9.0
Trust
7.0
Experience
8.4
Read review
Moneta Markets
Account
7.4
Tools
6.6
Service
8.0
Trading
6.6
Trust
5.2
Experience
9.2
Read review

Recommended content


Recommended content

Editors’ Picks

EUR/USD accelerates losses to 1.0930 on stronger Dollar

EUR/USD accelerates losses to 1.0930 on stronger Dollar

The US Dollar's recovery regains extra impulse sending the US Dollar Index to fresh highs and relegating EUR/USD to navigate the area of daily troughs around 1.0930 in the latter part of Friday's session.

EUR/USD News
GBP/USD plummets to four-week lows near 1.2850

GBP/USD plummets to four-week lows near 1.2850

The US Dollar's rebound keep gathering steam and now sends GBP/USD to the area of multi-week lows in the 1.2850 region amid the broad-based pullback in the risk-associated universe.

GBP/USD News
Gold trades on the back foot, flirts with $3,000

Gold trades on the back foot, flirts with $3,000

Gold prices are accelerating their daily decline, steadily approaching the critical $3,000 per troy ounce mark as the Greenback's rebound gains extra momentum and US yields tighten their retracement.

Gold News
Can Maker break $1,450 hurdle as whales launch buying spree?

Can Maker break $1,450 hurdle as whales launch buying spree?

Maker holds steadily above $1,250 support as a whale scoops $1.21 million worth of MKR. Addresses with a 100k to 1 million MKR balance now account for 24.27% of Maker’s total supply. Maker battles a bear flag pattern as bulls gather for an epic weekend move.

Read more
Strategic implications of “Liberation Day”

Strategic implications of “Liberation Day”

Liberation Day in the United States came with extremely protectionist and inward-looking tariff policy aimed at just about all U.S. trading partners. In this report, we outline some of the more strategic implications of Liberation Day and developments we will be paying close attention to going forward.

Read more
The Best brokers to trade EUR/USD

The Best brokers to trade EUR/USD

SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.

Read More

Forex MAJORS

Cryptocurrencies

Signatures

Best Brokers of 2025