What is GBP/NZD?
The GBP/NZD currency pair represents the exchange rate between the British pound and the New Zealand dollar, or the amount of dollars (the quote currency) needed to purchase one pound (the base currency).
GBP, also known as the pound sterling or "Cable" in financial circles, is the oldest currency in use today in the United Kingdom and British Overseas Territories. Even though the US dollar has replaced the British pound as the world's primary reserve currency, a position it held for centuries, the British pound continues to play an important role in international trade and finance.
The New Zealand dollar is legal tender in New Zealand and several of its territories and associated Pacific states, such as the Cook Islands, Niue, Tokelau, and Pitcairn Islands. It is one of the most actively transacted currencies on the international foreign exchange market. Due to its stable economy and relatively high-interest rates relative to other major currencies, the New Zealand dollar is a favourite among currency traders.
GBP/NZD historical performance
The significance of the British pound as a reserve currency has diminished over the past few decades, and the currency's volatility has increased in the 2010s due to Brexit and other political unrest.
What affects the price of the GBP/NZD pair?
Concerns about the United Kingdom's financial services sector can affect the GBP/NZD exchange rate. The financial sector is a significant contributor to the British economy and a significant value driver for the pound. Any negative effects on the sector's health can affect investment flows between the UK and New Zealand. If investors perceive increased risks in the United Kingdom's financial sector, this could result in a transition away from the GBP.
As sector concerns can contribute to increased volatility and uncertainty in the GBP/NZD currency pair, traders and investors closely monitor the financial services industry, Brexit-related news and negotiations, and economic indicators to determine the potential impact on the exchange rate.
Changes in trade balances and trade agreements also impact the GBP/NZD exchange rate. The United Kingdom and New Zealand are close trading partners, exchanging products and services bilaterally. New Zealand is a major exporter of agricultural goods, especially meat, dairy products, and wool. Consequently, the NZD is frequently classified as a commodity currency, which means that its value is impacted by fluctuations in commodity prices. The UK exports machinery, vehicles, and manufactured products to New Zealand.
The Commonwealth membership of the United Kingdom and New Zealand facilitates trade cooperation and economic connections. Following the United Kingdom's exit from the European Union, New Zealand and the United Kingdom are negotiating a bilateral free trade agreement (FTA) to reduce tariffs and non-tariff barriers, encourage investment, and deepen their economic cooperation.
For instance, if the United Kingdom and New Zealand negotiate a new trade agreement that reduces tariffs and trade barriers, it could result in an increase in trade between the two nations and possibly strengthen the GBPNZD exchange rate. In contrast, disruptions in the financial services industry because of regulatory changes following Brexit could have a negative impact on investor confidence in both economies and lead to a depreciation of the GBPNZD pair.
Tourism is a significant contributor to New Zealand's economy, making the NZD susceptible to disruptions in the sector. These can be triggered by travel restrictions, such as during the COVID pandemic, and by natural disasters to which New Zealand is prone, such as flooding due to earthquakes and tsunamis.
What to watch out for when trading GBP/NZD?
Keep an eye on data releases and statements from influential UK and New Zealand organisations when trading GBP/NZD.
- Bank of England (BoE) and Reserve Bank of New Zealand (RBNZ) announcements for Interest Rates and shifts in monetary policy
- National Statistics (UK) and Statistics New Zealand for data on Trade Balance, Unemployment Rate, Consumer Price Index (CPI), and Gross Domestic Product (GDP)