GBP/NZD Rate Week Ahead Forecast: Solidifying 2.0

• GBP/NZD increasingly comfortable at 2.0
• "Ugly" technical picture for NZD, says ANZ's Croy
• NZ sentiment report due this week

Image © Adobe Stock

The New Zealand Dollar is under pressure thanks to last week's domestic inflation release that came in softer than the market was expecting as well as the broader setback experienced by the commodity currency bloc.

The New Zealand Dollar weakened alongside its commodity currency peers ahead of the weekend in sympathy with a broad-based fall in commodity prices, with losses extending into the new week.

Oil, iron ore and copper were all names that dragged the sector lower, resulting in underperformance by the Australian, New Zealand and Canadian Dollars.

The declines are linked to China where the 2023 economic rebound appears to be driven by consumer demand as opposed to the kind of industrial strength that would typically bolster the commodity sector.

Domestically, the Kiwi struggled as New Zealand inflation undershot expectations and prompted markets to lower bets for the peak in the Reserve Bank of New Zealand's (RBNZ) basic interest rate.

This weighed on Kiwi bond yields, which was in turn reflected in lower currency valuations.

Headline CPI increased by 1.2% quarter-on-quarter, below the consensus expectation of 1.5%.

The New Zealand Dollar is "likely to remain heavy this week given the weaker than expected New Zealand CPI last week," says Joseph Capurso, Head of International and Sustainable Economics at CBA.

Regarding the domestic calendar, ANZ's business outlook (Thursday) and consumer confidence (Friday) are the two scheduled data releases, even if they are second-tier in nature.

They should nevertheless reaffirm a concerning trend for the New Zealand economy and its currency where outright levels of sentiment – for both businesses and consumers – remains weak.

"Households understandably remain in a glum mood, with pessimism across both current and forward-looking dimensions expected within this survey. The surging cost of living and weaker balance sheets are expected to see continued weakness in the financial well-being of consumers," says Chris Tennent-Brown, an economist at Auckland Savings Bank.

"Likewise, expectations of it being a good time for major purchases are expected to remain subdued," he adds.

NZD Currency Pair Forecasts: "It's Ugly"

Above: GBP/NZD at daily intervals showing a determined uptrend.

The Pound to New Zealand Dollar exchange rate (GBP/NZD) technical setup is described as "technically very ugly," by ANZ strategist David Croy.

He says the break below 0.50 in NZD/GBP "has put this cross into a real tailspin. Caution."

Of course, NZD/GBP at 0.50 is GBP/NZD at 2.0, which represents a significant technical figure for the pair.

Recent price action suggests the pair is becoming increasingly comfortable above this level and should form a support base going forward.

Looking at NZD/USD, Croy says technicals are "starting to get interesting, with the 8 March low of 0.6085 now close".

"We aren't forecasting weakness, but a sustained break below that level would be a bearish development. Trade data this week will also be key given raised eyebrows over the NZ’s large and unenviable current account deficit," he says.

NZD/AUD is likely to be heavily dependent on the outcome of Australian CPI data due on Wednesday.

"That will set the scene for the RBA’s May meeting, with markets split on what we’ll see (and a similar split emerging here in terms of RBNZ expectations)," says Croy.

The ANZ analyst says support for this pair is at 0.9000/0.9090 while resistance is at 0.9425/0.9550.

NZD/EUR is also "technically ugly," says Croy as the downtrend is now "well in train" as markets take the view that NZ is headed for recession but EU data rebounds.

Support for the pair is at 0.5350/0.5515/0.5550 with resistance at 0.6160/0.6300.