NZD/GBP

Currencies // Developed Markets

• Background

  New Zealand’s financial centre is Wellington. 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. 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. 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 Bank of England is the central bank of the UK, and acts as the banker of the UK government. Also known as ‘The Old Lady’ it is responsible for stable prices and confidence in the currency. It tries to do this by meeting the government’s inflation target. It is also responsible for financial stability by way of its monitoring systems and works with the UK Treasury to secure this. It no longer has oversight of the regulation and supervision of the banking industry as this is now overseen by the FSA (Financial Services Authority).

• Influencing Factors

  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. 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.