Pound to New Zealand Dollar Week Ahead Forecast: Eyes on 2.16
- Written by: Gary Howes
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- GBP/NZD technicals aligned for gains
- But, UK and NZ inflation is on tap
- China stimulus disappointment weighing on Monday
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Pound Sterling is forecast to maintain a bullish trend against the New Zealand Dollar in the short term, although roadbumps ahead include inflation numbers out of both the UK and NZ.
The Pound to New Zealand Dollar exchange rate (GBP/NZD) is in a near-term uptrend, with all the technical indicators on our Week Ahead dashboard advocating for upside.
GBP/NZD is above the full suite of moving averages, including the multi-hour 9-day moving average, and the Relative Strength Index is positive at 58 and is pointing higher.
The immediate target is the high struck last week Wednesday at 2.1592, confirming a graphical resistance target at 2.16.
The exchange rate starts the new week with a gain, thanks largely to a stimulus announcement from China that didn't quite meet expectations and leaves investors waiting for further policy details.
China's Ministry of Finance announced trillions of yuan would be made available in a special local bond fund, while special local government bonds can be used to hoover up unsold housing inventory, land acquisition and redevelopment.
The central government also has room to borrow more and allow for the deficit to increase. A one-off and "significant" government debt swap programme was also announced.
There is an expectation that China is taking steps to boost the economy, but until a 'big bang' moment is announced the New Zealand Dollar will likely reflect growing investor caution and disappointment.
Above: GBP/NZD technicals are aligned for upside.
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"Policymakers have recognised the issues and are putting a genuine effort to coordinate better support domestic demand and repair confidence. More time maybe needed for support measures and approvals to come through," says Christopher Wong, FX and Rates Strategist at OCBC.
Domestically, it is all about inflation.
New Zealand's quarterly inflation data are due out Tuesday and investors will try and gauge what they mean for the outlook of New Zealand monetary policy.
If the headline CPI measure undershoots an expected 0.7% quarter-on-quarter growth rate, the odds of a quickening in the RBNZ's rate-cutting cycle will be entertained.
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This would weigh on NZD and propel GBP/NZD to the highs at 2.16. Should the data beat expectations, then GBP/NZD can come under pressure and drift back towards the nine-day moving average at 2.1350.
It's a big week for the UK, where employment and inflation numbers are due, and we report a high chance the Pound will suffer a setback on the data undershooting expectations.
On Tuesday, it will be all about the average earnings component of the labour market report. The release is anticipated to show wage growth of 5%, down from 5.1%. When bonuses are included, the figure is expected to be 3.8%.
Anything below this would put the Pound under pressure.
Wednesday's UK inflation figures will be closely watched. The headline CPI rate is predicted to be 1.9%, which is back below the Bank of England's 2.0% target.
"We estimate that CPI inflation temporarily dipped to 1.7% in September, which would be the lowest reading since April 2021," says a note from Oxford Economics that explains the fall will be largely down to the decline in global oil prices.
The data will impact interest rate expectations, to which the Pound is sensitive. Two weeks ago it dropped sharply after Bank of England Governor Andrew Bailey said the Bank would be more "activist" on cutting interest rates if the data allowed.
Could this week's fall in headline inflation below 2.0% give the "activist" Bailey the ammunition he is looking for?
We think it could, as the Bank will likely want to ignore the fact that falling oil prices are behind the fall in inflation.
So, while the global picture should support GBP/NZD's upside as NZD unravels excitement over China, UK-specific risks could keep gains limited to approximately 2.16.
