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Kiwi jumps against pound

NZ NewswireNZ Newswire 4/08/2016 Paul McBeth

The New Zealand dollar has jumped to its highest in more than two weeks against the British pound after the Bank of England cut interest rates and delivered a bigger-than-expected stimulus package.

The kiwi rose as high as 54.87 pence, trading at 54.69p at 8am on Friday in Wellington from 53.77p on Thursday. It edged up to US71.78 cents from 71.69c.

The Bank of England cut the bank rate a quarter point to a new record low 0.25 per cent and said it would buy up to STG10 billion ($NZ18.6b) of UK corporate debt and expand its asset purchase programme of UK government bonds by STG60b.

Investors had expected the interest rate cut, but the size of new quantitative easing took them by surprise, pushing the sterling down 1.6 per cent and triggering a 1.6 per cent rally in UK stocks.

New Zealand's currency has been bolstered by the relatively high yield on offer, and the Reserve Bank of New Zealand is expected to cut the official cash rate a quarter point to 2 per cent next week as the strong kiwi and cheap oil continue to push down consumer prices, with inflation tracking below the central bank's target.

"The BoE's actions will no doubt add to the low global interest rate complex and further support the hunt for yield," ANZ Bank New Zealand chief economist Cameron Bagrie said in a note.

"As such, higher yielding markets, including NZ, should continue to benefit, which leaves the RBNZ in tight spot of playing catch-up and easing further in an environment of good growth and rapidly rising credit growth, but no inflation."

On Friday morning, the local currency was little changed at 94.01 Australian cents from A94.18c on Thursday and unchanged at 72.63 yen. It gained to 64.48 euro cents from 64.28c and increased to 4.7640 Chinese yuan from 4.7564 yuan. The trade-weighted index was little changed at 76.18 from 76.05.

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