GBP/NZD

Currencies // Developed Markets

• Background

  The UK pound or sterling (GBP) is the currency of the UK and is the world’s oldest currency still in use. It is the fourth most traded currency after the US dollar, yen and euro. It is one of the top five reserve currencies held by central banks around the world. With the breakdown of the Bretton Woods system the pound has floated from 1971 and has depreciated ever since. A flirtation with fixed exchange rates in the late 1980s and early 1990s ended disastrously with the exit from the Exchange Rate Mechanism in 1992, as interest rates soared. The New Zealand dollar (NZD) is the currency of New Zealand and is one of the 12 most traded currencies in the world. It is also referred to as the ‘kiwi’. In July 1967 the New Zealand dollar replaced the New Zealand pound at a rate of 2:1 when the country adopted decimalisation. In 1971 the kiwi was pegged to the US dollar in a 4.5% band around 1.216 until it was freely floated in March 1985. The UK is one of the most globalised countries in the world. Its economy is heavily service driven. Over three quarters of the workforce have jobs in the services sector. One of these sectors is the large financial services sector, which has contributed a massive amount of tax revenue to the balance of payments over the past few years. New Zealand’s economy is greatly dependent on international trade, mainly with Australia, the EU, the US, China and Japan. It also has a strong tourist industry and a robust services sector.

• Influencing Factors

  Factors affecting the value of the pound are economic indicators including the level of interest rates, trade balance, unemployment, price inflation and GDP. The value of sterling is also affected by the prices of coal and oil and other commodities like aluminium, a key component in the small UK automotive industry, as well as other base metal prices. Factors affecting the value of the New Zealand dollar are economic indicators including the level of interest rates, trade balance, unemployment, price inflation and GDP. The value of its currency is also affected by the price of coal and oil and other commodities like base metals. As a net food exporter it also susceptible to swings in agricultural prices.