The Pound Sterling to Euro (GBP/EUR), Pound Sterling to Australian Dollar (GBP/AUD) and Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rates were all trending higher at the start of Monday’s European trading after China’s interest rate cut rocked the Trans Tasman region and the Bank of England (BoE) left interest rates on hold while making no adjustment to QE.
China's falling growth prompts PBOC into weekend rate cut – third since November pic.twitter.com/7ferBr6Art
— Tom Orlik (@TomOrlik) May 10, 2015
Australian Dollar (AUD) and New Zealand Dollar (NZD) Exchange Rates Fall as PBoC Cuts Interest Rates
The Australian and New Zealand Dollars were flat on Monday after the People’s Bank of China (PBoC) announced that it was cutting interest rates, again. As China is a strong trading partner of both Australia and New Zealand, any developments in the nation can cause AUD and NZD fluctuations.
The PBoC statement read: ‘China’s economy is still facing a relatively big downward pressure. At the same time, the overall level of domestic prices remains low, and real interest rates [interest rates relative to inflation] are still higher than the historical average.’
However, the move has got the market questioning how effective the rate cut will be as the PBoC only made a 25 basis point adjustment to lower the benchmark to 5.1%.
Economist Li Qilin commented: ‘The effectiveness of the rate cut won’t be very big. The PBoC has already cut benchmark interest rate by a total of 75 basis points, but borrowing costs have only fallen marginally.’
Monday’s Oceanic session had seen New Zealand’s Card Spending figures slip, which offered little support to the New Zealand Dollar to Australian Dollar (NZD/AUD), New Zealand Dollar to Euro (NZD/EUR) and New Zealand Dollar to Pound Sterling (NZD/GBP) exchange rates.
RBA and RBNZ Interest Rate Cuts Weigh on AUD and NZD
New Zealand Retail Card Spending fell by -0.7% on the month in April, rather than registering the +0.5% forecast. Additionally, overall New Zealand Card Spending slipped by -1.1% in the month, a far cry from the +1.2% prediction.
The New Zealand Dollar is also weighed down by the possibility of Reserve Bank of New Zealand (RBNZ) interest rate cuts in the near future. Some economists have suggested that the RBNZ may begin to cut rates as early as June. The Reserve Bank of Australia (RBA) has already begun cutting rates this year, lending little support to the ‘Aussie’ exchange rate.
Meanwhile, the Australian Dollar to New Zealand Dollar (AUD/NZD), Australian Dollar to Euro (AUD/EUR) and Australian Dollar to Pound Sterling (AUD/GBP) exchange rates were offered little support from the latest NAB business ecostats. NAB Business Confidence remained at 3 in April, while NAB Business Conditions sank from 6 to 4.
NAB chief economist Alan Oster commented: ‘Until confidence lists significantly it is difficult to see a sustained economic recovery developing. Low interest rates are having a notable impact on the most sensitive sectors of the economy, like investor housing, and the recent rate cut in May should further contribute to these trends.’
‘Nevertheless, pass-through to the broader economy has been somewhat mixed.’
Brussels Finance Minister Meeting Forecast to Cause Euro (EUR) Exchange Rate Fluctuations – Greece in Focus
Meanwhile, the Euro to Australian Dollar (EUR/AUD), Euro to New Zealand Dollar (EUR/NZD) and Euro to Pound Sterling (EUR/GBP) exchange rates are all forecast to fluctuate dependent on the outcome of Monday’s Brussels finance minister meeting.
Greece has been attempting to renegotiate its austerity deal since January and the EUR/GBP exchange rate has experienced some major fluctuations as a result.
Pound Sterling (GBP) Exchange Rate Forecast for Movement on BoE Interest Rate Decision
The Pound Sterling to Australian Dollar (GBP/AUD), Pound Sterling to New Zealand Dollar (GBP/NZD) and Pound Sterling to Euro (GBP/EUR) exchange rates are likely to swing as Monday’s European trading continues as investors look for direction for Bank of England (BoE) interest rate hikes.
EU #daybook: BOE will probably leave benchmark rate unchanged. Euro-zone finance ministers gather in Brussels. Germany, France sell bills.
— Francine Lacqua (@flacqua) May 11, 2015
Bank of England maintains #BankRate at 0.5% and the size of the Asset Purchase Programme at £375 billion
— Bank of England (@bankofengland) May 11, 2015
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate is trending in the region of 2.1166. The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is trading at 1.9631; the Pound Sterling to Euro (GBP/EUR) exchange rate is trending in the region of 1.3904.