Pound vs. New Zealand Dollar Week Ahead Forecast: Trade Below 2.00 to Extend
Image © Natanael Ginting, Adobe Stock
- GBP/NZD sideways below 2.00
- A clear break above would lead to more upside
- New Zealand Dollar likely to be driven by global risk
The Pound-to-New Zealand Dollar exchange rate is trading at around 1.9630 at the start of the new week, after falling almost 2.00% in the week before. Studies of the charts suggest the pair may continue to churn sideways beneath key resistance at 2.00 but that eventually it could break higher if an established uptrend resumes.
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 and touched the key 2.00 May highs before pulling back down.
Last week the pair based just above a key trendline before bouncing back up again.
The pair might well continue trading between the trendline and the May highs in a tapering sideways range.
Or it could break above the 2.00 highs and provide confirmation of a continuation up to a target at 2.02.
Despite the current sideways market the established trend is still bullish providing the pair with a bullish upside bias.
It would take a break below the trendline and a pierce of the 1.9400 level to reverse the trend from bullish to bearish.
The daily chart shows the full extent of the uptrend from the late July lows.
It shows how the pair has pulled back to the trendline and is now starting to recover again.
Given the old adage that ‘the trend is your friend’, this uptrend is biased to extend.
A break above the 2.00 ceiling would be required to confirm an extension up to a potential target at the 2018 highs of 2.04.
The daily chart provides a view of the medium-term outlook which includes the next week to month.
The weekly chart simply shows the bigger picture: how the pair is in a long-term, multi-year, sideways trend within which it has been rising up since July.
A break above the May highs could see the pair hit 2.04 before pulling back down to circa 2.00 - 2.02 after bumping up against which is likely to be a tough resistance level at the 2018 highs.
The weekly chart is used to give us an idea of the longer-term outlook, which includes the next few months.
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The New Zealand Dollar: What to Watch this Week
The main driver of the New Zealand Dollar in the week ahead is global investor risk appetite whilst business sentiment could play a supporting role.
The Kiwi is sensitive to risk sentiment especially in relation to the outlook for China, its closest trading neighbour.
Chinese data on Monday showed Chinese Manufacturing PMI higher than expected in September, providing risk-sensitive assets with a boost at the start of the week.
Taking some of the edge of the positive economic data, however, was the news that the U.S. government may be considering limiting both U.S. investments in Chinese stocks and Chinese investment flows in U.S. stocks, as part of its trade strategy, according to Nick Smyth of BNZ Bank.
Nevertheless, though generally negative for risk sentiment it did not actually seem to affect the Kiwi overly.
“US equity markets closed lower on Friday night after Bloomberg reported that the US administration was considering delisting Chinese companies in the US and restricting US portfolio flows into Chinese markets. The CNH also weakened on the report, although there was only a minor impact on the NZD and AUD,” says Smyth.
The news that Saudi oil production is back up to pre-strike levels and broader tensions in the Middle East are easing has brought down the price of oil, and this is likely to support investor sentiment going forward.
ISM Manufacturing PMI for the U.S. out on Tuesday is a key barometer for the U.S. economy which could have a major impact on global risk sentiment and the Kiwi.
If it comes out higher than expected it could have a positive spill-over effect on the NZD and vice versa if negative.
The same goes for U.S. payrolls data on Friday, which is probably the most important gauge for the world’s largest economy on the calendar.
On the New Zealand domestic front, meanwhile, NZIER business confidence for Q3 out at 17.00 on Monday could also impact the Kiwi.
Last quarter it came out -34% lower to analysts will be looking for a better result in Q3 to stave of Kiwi-negative expectations of further rate cuts from the central bank.
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