Pound-New Zealand Dollar Exchange Rate Forecast: Bias for Further Losses

- Technicals to weigh on GBP/NZD
- NZ moves to level 2 restrictions
- NZ economy likely to outperform UK over coming weeks
- Bias for GBP/NZD tilted lower as a result

Above: File image of New Zealand PM Ardern © NATO, reproduced under CC licensing conditions, image cropped from original.

- GBP/NZD spot exchange rate at time of writing: 2.0238
- Bank transfer rate (indicative guide): 1.9530-1.9670
- FX specialist rates (indicative guide): 1.9610-2.0056 >> more information

Pound Sterling is likely to maintain a soft tone against the New Zealand Dollar over coming days, a view that is based on an assessment of the technical structure of the GBP/NZD market and observations of the fundamental drivers impacting on the two currencies.

The Pound-to-New Zealand Dollar exchange rate has steadily lost value since the pair failed to break above the 2.10 resistance barrier in early April, a failure that has lead to a capitulation back to current levels at 2.0241.

Studies suggest that momentum favours further downside in the near-term, which we consider to be coming days and potentially the next 1-2 weeks. A key measure of momentum, the RSI, is presently located below the 50 level which is consistent with further downside momentum.

Other key technical indicators that hint at further downside include the the MACD reading which sits in negative territory and below its signal line.

Further advocating for downside is the observation that GBP/NZD trades below the 20 and 50 moving averages which are currently located at 2.0597 and 2.0543 respectively.

Fresh analysis from Trading Central says that, "the downside prevails as long as 2.1091 is resistance". Trading Central have identified 2.1091 as being something of a pivot, noting that a break above here would open the door to a more concerted bout of appreciation by Sterling. Indeed, the 2.1091 level more or less mirrors our observation that GBP/NZD has fallen since it failed to break above 2.10 in early April.

Above: GBP/NZD chart showing key indicators, including 2.10 resistance, 20 day moving average (blue line) and the 50 day moving average (orange line).

While technical studies bode for further GBP/NZD downside, fundamental drivers behind a view that the New Zealand Dollar should be favoured over its British counterpart in the near future are also evident.

New Zealand on Monday announced the further easing of coronavirus lockdown measures, with Prime Minister Jacinda Ardern saying the country was to move into 'level 2' of its coronavirus response strategy.

The shift to level 2 allows schools to reopen, workers to return to their offices, and restaurants and retail stores to resume trade.

Recreational and competitive sport could also restart, and libraries, playgrounds and museums would open.

Pubs would be allowed to reopen from May 21.

The rapid move to reopen New Zealand's economy is possible because less than 1500 people have been infected with covid-19 thanks in part to an aggressive response to the viral outbreak that saw the government shut its borders on March 15 and enact a country-wide lockdown on March 25.

The reopening of the New Zealand economy contrasts greatly with the UK where the government is only starting to consider lifting restrictions aimed at stemming the spread of covid-19.

UK Prime Minister Boris Johnson said on Sunday night that it was too early to consider lifting restrictions, with this week's only change being that individuals can leave the house more than once a day for exercise.

Further lifting of restrictions will be determined by the anticipated reproduced rate of the virus, but based on current projections most shops in the UK could start reopening in June.

However, a full reopening of the economy is only likely from August at the earliest.

The contest in fortunes for the UK and New Zealand economies could increasingly be reflected in a lower GBP/NZD exchange rate over coming weeks and months as economic divergence becomes an increasingly dominant driver of currency rates.

"We expect that the main market driver in the weeks ahead will be whether countries will succeed in their exit plans from the lockdown," says Athanasios Vamvakidis, strategist at Bank of America Merrill Lynch. "We know the lockdown was bad for the economy, and therefore any opening-up should be positive."