Pound-New Zealand Dollar Hovers Close to 10-Month Low, Downside Likely to Extend

- GBP/NZD downtrend firmly intact
- NZD strengthening in tandem with market rally
- ANZ says wary of NZD weakness

Image © Adobe Stock

• GBP/NZD spot rate at time of writing: 1.9231
• Bank transfer rates (indicative guide): 1.8558-1.8693
• FX specialist rates (indicative guide): 1.9060-1.9140
• Find out more

The Pound-to-New Zealand Dollar exchange rate has been pushed back down to 1.9237 at the start of the week, putting it just shy of the ten-month low reached on Friday at 1.9198.

Aiding a move higher in the New Zealand Dollar is a recovery in the value of global equity prices after a shaky start to the new week, with stocks trending higher despite lingering concerns over rising covid-19 infection rates in the United States.

"Markets have climbed back into the green after early losses, with stocks proving the doubter wrong yet again as a world of stimulus trumps the reality of economic and health struggles," says Joshua Mahony, Senior Market Analyst at IG.

Despite bouts of nerves, the global economic recovery theme remains the dominant theme for markets, a situation that has contributed to the New Zealand Dollar's appreciation against Sterling which has now been in place since April 15.

"G10FX is an equity trade. The typical high-beta currencies like AUD/NZD/CAD have led the G10 complex in performance against the USD amid high and stable correlations to equities," says Mark McCormick, Global Head of FX Strategy at TD Securities.

We see little technical evidence that the multi-week downtrend in GBP/NZD is likely to be broken imminently and therefore retain a view that any strength in the exchange rate is likely to remain short-lived in nature and the downside will therefore be preferred.

According to David Croy, Strategist at ANZ Bank, GBP/NZD looks to be "finally sustaining its long-awaited break" through the 1.9455/1.93 congested support. "A clean break is needed and looks likely after what has been some very frustrating price action of late," says Croy.

Resistance for any GBP/NZD exchange rate strength is identified at 1.9646 by ANZ, further declines are meanwhile likely to run down to technical support located at 1.9050.

Broader market trends are meanwhile expected to underpin the technical chart developments in the NZ Dollar, with ANZ wary that markets remain susceptible to bouts of coronavirus-related weakness as has been the case over the past week.

"Risk-off sentiments looks to have regained the upper hand as markets start to fret about fresh virus outbreaks/second waves, caution on the part of Fed speakers, and the slowing pace of global QE. New imported virus cases here don’t help the tone; nor does Victoria’s decision to ratchet up restrictions. None of this speaks to an imminent collapse in the Kiwi, but the market seems to have more of an ear out for negative themes," says Croy.

Looking at the other key NZD exchange rates, Croy says fair value in NZD/USD is located at 0.65; "strategically we’re neutral with risks in both directions, but the scales possibly tipped a tad just now".

Against the Euro, Croy says the NZD is likely to maintain tight ranges, "which has held steady but looks ready for another assault on 0.5770. Remains well bid on dips, for now".