Pound-to-New Zealand Dollar Rate Short-Term Forecast: Upside to Continue in Short-Term but Long-Term Bearish
Image © Filipe Frazao, Adobe Stock
- GBP/NZD short-term uptrend established
- Likely to extend given strength of surge
- New Zealand Dollar eyes key GDP data release this week
The GBP/NZD exchange rate is trading at 1.9296 at the time of writing, having fallen at the start of the new week amidst a broad-based Pound Sterling sell-off. However, studies of the charts suggest that the exchange rate will probably continue rising over the next five days as recent declines are not yet great enough to damage a constructive short-term technical setup.
The 4-hour chart - which gives us insights into the short-term outlook covering the next few days - shows how the pair based on the 6th of June before reversing and surging higher.
The exchange rate has now probably established a short-term uptrend after establishing two sets of higher lows (HL) and higher highs (HH), which is one of the first signs of establishment of a new uptrend.
Given the trend is expected to continue we see a good chance the pair will continue higher and a break above the 1.9415 highs would probably lead to a continuation up to a short-term target at 1.9470 where the 200-period MA is situated.
We use the 4-hour chart to give us an indication of the short-term outlook which includes the next five trading days.
Taking a step back, the daily chart highlights how substantial resistance from the March highs is capping the exchange rate and that for the short-term uptrend to extend it needs to break clearly above the skein of resistance formed by the 50-day MA and the March highs in the 1.9440s.
If it can successfully break above this ceiling of resistance it could continue up to a target at 1.9600.
The RSI momentum indicator - which gives us an indication of where momentum lies - is rising quite strongly in tandem with the price and is a sign of underpinning bullish confidence.
We use the daily chart to give us an indication of the medium-term outlook which includes the next week to a month.
The weekly chart - which gives a longer-term overview - shows how the short and medium-term uptrends will probably eventually petter out and rotate to the downside longer-term.
The pair appears to be forming a bearish ABCD or Gartley pattern, suggesting an extension of the downtrend since the 2018 highs is possible.
These patterns are composed of three waves in a zig-zag formation. The length of A-B can be used to forecast the length of C-D. In this case, it suggests an end target for C-D of around 1.7600 - 1.8000.
We use the weekly chart to give us an idea of the longer-term outlook, which includes the next few months.
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The New Zealand Dollar: Domestic Growth Data in Focus
The major drivers of the New Zealand Dollar in the week ahead are likely to be GDP data for the first quarter, and global investor risk appetite trends.
First quarter GDP is forecast to show a 0.6% rise from the same rate in the previous quarter, when it is released at 23.45 BST on Wednesday, June 17.
Investors still see the Reserve Bank of New Zealand (RBNZ) as capable of cutting interest rates and if GDP data for Q1 is worse-than-expected it will increase bets they will go ahead, with negative implications for the Kiwi.
“GDP estimates for the first quarter, due on Thursday, will be watched closely as any unexpected weakness in economic growth would fuel speculation that the RBNZ will deliver another cut before the year-end,” says Raffi Boyadijian, an economist at broker XM.com.
Lower interest rates depreciate the local currency by reducing the attractiveness of the country as a destination for foreign capital inflows.
Expectations for a soft reading are high after survey data out last week showed the country's manufacturing sector is flirting with contraction. The BNZ / Business NZ Performance of Manufacturing Index (PMI) for May read at 50.2, far below the market estimate for a reading of 53.0 to be delivered.
"Production (46.4) was at its lowest value since April 2012, while the other key sub-index of new orders (50.4) only just managed to stay in positive territory. Given the latter feeds through into the former, it does not instil a strong belief that the sector will show solid improvement over the next few months," says BusinessNZ's executive director for manufacturing, Catherine Beard.
The New Zealand Dollar understandably went lower on the data, and secured the title of the worst-performing major global currency last week.
"The NZD’s resilience is starting to crack. While a more balanced RBNZ could provide some interim support, like the AUD, there is little domestic story to justify the strength. With a challenging global story over the medium term, we think conditions are in place for the NZD to fall below fair value in 2019," says Daniel Been, a foreign exchange strategist with ANZ.
Another important driver for the New Zealand Dollar in the short-term will likely be global investor sentiment.
Risk sentiment seems to have improved after geopolitical concerns in Hong Kong and the Persian gulf eased, while there have been no fresh new headlines on the U.S.-China trade war.
This creates the space for global markets to rally, and the New Zealand Dollar tends to benefit in these conditions.
"The lack of major disruption over the weekend has helped risk appetite. Key flashpoints in the shape of the Hong Kong protests and the attack on tankers in the Middle East failed to develop, and the Deutsche Bank plan to create a bad bank (some might wonder what would be left of DB) has helped finance stocks to post some gains," says Chris Beauchamp, Chief Market Analyst at IG.
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