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USD continues to decline, GBP extends the gains, and NZD down despite RBNZ to keep interest rates steady

BLOG February 24, 2021 at 05:40 am (GMT)

• USD cautiously lower, with GBP and CAD outperforming
• RBNZ to keep interest rates unchanged at 0.25%, in line with expectations
• GBPNZD rises as confidence grows in UK economy

During the last trading session in the US, the tech-heavy Nasdaq Composite underperformed at -0.5%, Dow Jones and S&P 500 climbed 0.05% and 0.13% respectively. However, these incremental gains were after the deep gaps at the start of the session. VIX market, which measures the market fear, temporarily spiked to its highest in 3 weeks. The sentiment had been pacified a little bit by the Fed Chair Jerome Powell, who reiterated the central bank’s dovish stance, likely encouraging investors to buy the dip. Powell states that, economy still has a long way to go in order to reach the goals; inflation will be volatile but will be controlled below the troubling level. On the FX side, this information transferred to a cautious drop in USD, with GBP and CAD outperforming. This leads to a 3-year low on USDGBP.

In New Zealand, the Reserve Bank of New Zealand (RBNZ) stated to keep its interest rate unchanged at 0.25%, in line with expectations. Investors are currently looking for comments from RBNZ regarding the economic prospects, and some of them are expecting that interest rates to be raised by the end of 2022 given the positive progress towards recovery.

Despite RBNZ’s expected move, GBPNZD rose as the outlook on the UK economy seems more positive at this moment. Johnson commented that he was “very optimistic” about the lockdown restrictions ending on June 21st. As a result, GBP edged higher against major counterparts, with GBPNZD currently fluctuating around NZ$1.93. Another reason contributing to the NZD’s weakness is that New Zealand’s retails sales fell below forecasts by -2.7%. Pound traders are waiting for tomorrow’s release on Bank of England’s monetary policy report hearings, looking for signs on bullish comments which would further buoy GBPNZD.