GBP/NZD Week Ahead Forecast: 1.9337 to 1.95 Range Possible
- Written by: James Skinner
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- GBP/NZD’s sideways consolidation set to persist
- Range of 1.9337 to 1.95 may prevail short-term
- U.S. data & USD key in quiet period for NZ data
- Half slate of BoE speakers also in focus for GBP
Image © Adobe Stock
The Pound to New Zealand Dollar exchange rate entered the new week around the middle of its one-month range and could be likely to trade toward the lower end of that spectrum over the coming days with price action spanning the gap between roughly the 1.9337 and 1.95 levels.
New Zealand’s Dollar fell heavily last week as the U.S. Dollar strengthened broadly and risk assets remained volatile across the globe in what many analysts characterised as a symptom of mounting investor concerns about the global economic outlook.
But Sterling was hard on the Kiwi’s heels with losses of more than two percent against the greenback, which kept the Pound to New Zealand Dollar exchange rate in a sideways consolidation trend that has defined price action in the pair since the early days of June.
“The Kiwi picked itself up off floor on Friday night as risk assets bounced. While it recovered ~40bps from the night’s low, it still closed below 0.62. That was not just another record low close for 2022, but it represented a clear break of 0.6230 (first breached on Thursday), which is the 61.8% Fibo of the 2020/21 move from 0.5470 to 0.7463,” says David Croy, a strategist at ANZ, in reference to NZD/USD.
Above: Pound to New Zealand Dollar rate shown at 4-hour intervals with Fibonacci retracements of June rebound indicating possible short-term areas of technical support for Sterling. Click image for closer inspection.
“That’s quite a worrying sign from a technical perspective, especially with the USD DXY holding up despite growing fears of a US recession. This is another big week for US data (Fed minutes, ISM services, payrolls) so it’ll likely be another week where global events and technicals dominate,” Croy also said on Monday.
Both Sterling and the Kiwi came under heavy pressure last week but did also gain a moment of respite late on Friday when the June edition of the Institute for Supply Management Manufacturing PMI hinted of a possible U.S. industrial slowdown, which wobbled the U.S. Dollar.
“NZD/USD recovered above 0.6240 after falling to new cyclical lows around 0.6187 last week. The Q2 NZIER Business Opinion survey is up next (6:00pm New York, 11:00pm London). The survey is expected to show inflation indicators at historical highs, reinforcing the case the RBNZ is on track to lift the OCR another 50bps to 2.50% next week,” says Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia.
The current sideways trend in GBP/NZD is reflective of Sterling’s recently enhanced susceptibility to strength in the U.S. Dollar, which has loaned it the characteristics of what analysts often refer to as a ‘high beta’ currency and implies that roughly a 1.9337 to 1.95 range is likely during the week ahead.
That’s according to the author’s own model, which uses currencies’ sensitivities to the direction of the Dollar and a process of cross-currency triangulation to estimate where non-Dollar exchange rates would be likely to trade as the Dollar itself rises and falls.
But much about where GBP/NZD trades within that likely range depends on the broad trajectory of the U.S. Dollar over the coming days, however, and during a period in which the New Zealand economic calendar is devoid of major appointments for the Kiwi.
“The main drivers of NZD/USD at present are global risk sentiment (proxied by equity prices, for example) and the US dollar (in turn driven by both risk sentiment and yield spreads),” says Imre Speizer, head of NZ strategy at Westpac.
“During the month ahead, the direction of risk sentiment will be key. But much further ahead, by year end, assuming sentiment stabilises, there is potential for the NZD to rebound towards 0.68. By then, the Fed story should be fully priced, which means yield spreads will no longer weigh on NZD/USD, while the spotlight will increasingly be on higher NZ commodity prices,” Speizer and colleagues said in a Monday research note.
Above: NZD/USD shown at weekly intervals with Fibonacci retracements of March and May 2020 recoveries indicating medium-term areas of technical support for the Kiwi and resistance for the U.S. Dollar. Click image for closer inspection.
There is a raft of important figures due out from the U.S. that could impact market appetite for the greenback in the days ahead including the ISM Services PMI and June non-farm payrolls report, while public appearances from Federal Reserve (Fed) officials and minutes of the bank’s June meeting.
“Even ahead of Friday’s data releases estimates of Q2 US GDP growth were already being revised down, with some market estimates even pointing to the risk of technical recession,” says Jane Foley, head of FX strategy at Rabobank.
“While surveys are currently suggesting that another 75 bps hike is still on the cards for the Fed in July, a less aggressive profile of Fed policy expectations is emerging for the rest of the year,” Foley also said in a Monday research briefing.
Meanwhile, and along the way, Pound Sterling will likely pay close attention as Bank of England (BoE) Governor Andrew Bailey announces the latest Financial Stability Report on Tuesday ahead of Wednesday speeches from Monetary Policy Committee (MPC) members Silvana Tenreyro and Huw Pill.
Those come ahead of a Thursday address from MPC member Catherine Mann, all of which are highlights of an otherwise quiet week in the UK calendar.
Above: Pound to New Zealand Dollar rate shown at daily intervals. Click image for closer inspection.