Pound-to-New Zealand Dollar Rate Week Ahead Forecast: The Big 2.0 Looms
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- GBP/NZD tipped to stall as traders take profit on bullish bets
- Trend still bullish and expected to resume eventually
- Sterling eyes Johnson's New York meetings
- New Zealand Dollar by RBNZ meeting
The Pound-to-New Zealand Dollar rate is trading at around 1.9906 at the start of the new week, after rising 1.68% in the week before, Sterling has meanwhile advanced a notable 3.75% over the course of the past month.
But, for those looking for further Sterling strength, our technical studies of the charts suggest the pair has reached a key target and resistance level where it is likely to stall and consolidate.
The 4 hour chart - used to determine the short-term outlook, which includes the coming week or next 5 days - shows how the pair has risen up strongly all through September to its medium-term target at 2.0000, at the level of the May highs.
The pair has completed a wave of buying and there is a good chance it will pull-back from here as traders book profits on their bullish trades.
We see a fairly strong chance the pair will begin to correct back down to perhaps as far as the 1.95-96 region from here and begin to trade sideways.
Overall the short-term trend remains bullish, however, so the pair will probably eventually go higher again but right now it is very mature and due a pull-back.
This is reflected in the RSI momentum indicator in the lower panel, which is in the overbought zone above 70 when this happens it is often a warning sign the pair may be due to correction.
Despite these bearish signs, the trend is still bullish so the pair could still go higher and a break above a confirmation level at 2.0050 would provide confirmation for a continuation higher regardless of other signs.
Such a move could see the pair rise up to a target at 2.0300 in the short-term.
The daily chart meanwhile shows how the pair has risen in a ‘measured move’ price pattern which has now unfolded to completion.
The c-d wave of the pattern has reached its endpoint target calculated at around 2.000 and the May highs.
The chances are the pair will pull-back from here and range-trade for a while before probably rising higher.
The overall short-term trend remains bullish, however, so a break above a confirmatory level at 2.0500 might provide then green-light for a move - first up to a target at 2.0300 as indicated on the 4hr chart, and then 2.0500.
The daily chart provides a view of the medium-term outlook which includes the next week to month.
The weekly chart shows how the pair could eventually rise up to the 2018 highs at 2.0500 if it continues rallying.
At that point, it is likely to pull-back down and consolidate for a time before potentially continuing higher.
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The New Zealand Dollar: RBNZ Dominates
The main event for the New Zealand Dollar in the week ahead is the Reserve Bank of New Zealand (RBNZ) interest rate meeting to decide the Official Cash Rate (OCR) at 3.00 BST on Wednesday, September 25.
The RBNZ is not expected to cut rates at the meeting even though the economy remains subdued and is fully in an easing cycle already.
“We expect no change in the OCR at next week’s review, but we do expect a further cut in November,” says Westpac in their preview piece.
Part of the reason it probably won’t cut its OCR any lower is that the Bank will want to see the full impact of the larger than usual 0.50% cut in August.
The Kiwi should remain supported, therefore, assuming interest rates are not cut any further.
One factor which might impact on the currency, however, is the wording of the statement and whether it gives a warning of further cuts on the horizon or not.
On this point, “the RBNZ will probably use language about the “possibility” of a future cut rather than giving an overt signal of imminent easing,” says Bill Evans, an economist at Westpac.
The reason why central bank policy is crucial to the currency is that currencies are highly correlated to interest rates so when they go up or down the currency often follows.
This is to do with capital flows and how attractive foreign investors perceive currency jurisdictions as a place to park their money, and a large part of that determinant is to do with the interest rate on offer.
Another key driver of the Kiwi is likely to be general global risk appetite which - bar an act of god - is likely to be fairly benign in the week ahead given the UN summit in New York, where foreign dignitaries will want to put on their best and most diplomatic face.
This combined the modest breakthroughs already made in U.S. - China trade talks and Brexit discussions could help keep risk appetite well supported and, therefore, also the Kiwi.
The Pound: Johnson to Make Fresh Brexit Bid in New York
The main focus for markets will be ongoing progress towards a Brexit deal between the UK and EU after what appeared to be some breakthroughs last week, and an improvement in the negotiation ‘mood music’ around Brexit.
On Thursday, European Commission president Jean Claude Juncker said, “we can do a deal” in an interview with Sky News, encapsulating the mood of optimism.
His comments on the Northern Ireland backstop are however perhaps the most notable in that he suggests he is open to dropping the clause that has proven to be the most problematic element of the existing Brexit Withdrawal Agreement for the UK side.
Juncker said a 'no deal' Brexit would have "catastrophic consequences" and said he was doing "everything to get a deal".
He said did not have "an erotic relation" Northern Ireland backstop, adding he was prepared to remove from a withdrawal agreement, so long as "alternative arrangements [are put in place] allowing us and Britain to achieve the main objectives of the backstop. All of them".
Prime Minister Boris Johnson aims to spell out further details surrounding the UK's proposals at the UN General Assembly, to be held in New York from Tuesday September 24.
Johnson will reportedly speak to Donald Tusk, the President of the European Council, as well as French, German and other EU leaders on the sidelines of the UN General Assembly in New York.
Analysts at Moneycorp, a currency broker based in London, say a potential resolution to the Irish border question could go a long way to calming investors’ fears over a 'no deal' Brexit:
"The Pound is continuing its recovery against the Euro, following reports that Prime Minister Boris Johnson will reveal an alternative solution to the Irish border issue at the UN next week. GBP/EUR reached a three-month high in reaction of ongoing progress."
Another key event will be the decision of the Supreme Court over whether it was lawful for Johnson to prorogue Parliament. This is likely to come at the start of the week according to the presiding judge Lady Hale.
The impact on the Pound is likely to be volatile but probably short-lived: if the decision is that Parliament was unlawfully shut-down and MP’s are able to return it will make it easier for them to stymie a ‘no-deal’ Brexit, which could give Sterling some further support.
The Pound's rally since mid-August has largely been built on a reassessment by the market that a 'no deal' Brexit had become increasingly unlikely owning to the decision by Parliament to effectively outlaw such an outcome.
If the decision goes the other way, the Pound may weaken as it will give the government the upper hand, as well as setting a legal president.
However, it is arguable that Parliament has already achieved its objectives in tying the Prime Minister's hands on the issue of 'no deal' therefore we would expect the impact to ultimately be limited.
Meetings also appeared to go well between the UK’s brexit minister Stephen Barclay and EU chief negotiator Michel Barnier.
Barclay said they had had "serious detailed discussions" and things were "moving forward with momentum", whilst Barnier commented that “it had been a "cordial" meeting, but "lots of work has to be done in the next few days", according to reports from the BBC.
Others were more sceptical: the prime minister Boris Johnson said that whilst there had been “progress” it was important not to “over-exaggerate”.
Irish foreign minister Simon Coveney said there was a "wide gap" between the UK and the EU, with Brussels "still waiting for serious proposals" from London.
Leaked comments from Brussels concerning the UK’s proposals suggested a gulf remained between the two, after a memo from the European Commission confirmed British proposals for replacing the Irish backstop "do not amount to legally operational solutions and would have to be developed during the transitional period".
Clearly, if there is more progress on a deal it will be beneficial to the Pound.
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