New Zealand Dollar to Pressure the Pound as Hedge Funds Chase GBP-NZD Lower

A prominent independent currency market trader tells us selling the British pound against the New Zealand dollar is a preferred strategy.

"We can expect more of the same in coming weeks and I’d suggest that selling rallies in GBP/NZD" - ForexTell's Sean Lee.

The pound sterling is currently seen trading at 1.9413 against the New Zealand dollar; GBP/NZD has fallen from a 2015 peak of 2.0936 confirming to us momentum is to the downside at the present time.

Professional retail trader Sean Lee from FXWW has suggested jumping onto this bandwagon is a viable strategy at the current time.

In a brief note to clients Lee says:

"The NZD has made very big gains against the EUR and GBP over the last 48 hours with the carry trade coming back into favour with macro type hedge funds.

"We can expect more of the same in coming weeks and I’d suggest that selling rallies in GBP/NZD in particular (weak GBP sentiment heading into the general election) should prove to be a profitable strategy."

The GBP/NZD exchange rate is seen testing the 2015 support zone of 1.94 as markets walk into the new week.

The resilience of this level is of importance as the NZD has failed to force GBP to breach below this level on four occasions in 2015.

If Lee, and the hedge funds for that matter, are correct then this level should ultimately break in coming sessions.

If it does expect selling pressures to pick up as more speculators are tempted into the market.

The next major support level from here is noted at 1.9100.

Be aware that all FX quotes in this piece reference the wholesale markets rates - your bank will affix a discretionary spread to this wholesale rate to derive their profit. However, an independent FX provider will undercut your bank's offer, this can deliver up to 5% more currency in some instances, learn more here.

New Zealand Dollar to Remain Firm

The kiwi dollar is a favourite on currency markets at the present time.

We have explored a number of key issues in a recently published note on the matter:

i) The inability of the RBNZ to actively intervene on the currency markets to suppress the NZD.

ii) The economy ultimately remains strong and the next move in interest rates is likely to be higher, this will only boost the attractiveness of New Zealand as a destination for yield.

For more on this forecast please see the piece.

Investors Have Two Reasons to Sell the Pound Sterling

As Lee mentions, more traders are starting to bet against the pound as political uncertainty continues to mount ahead of the May Election.

Discussions over the impact the elections could have on GBP are explored in greater detail here.

There is another reason to bet against the British pound says Nawaz Ali, UK Market Analyst, Western Union Business Solutions:

“Traders are selling the pound before next week’s UK inflation report – better known as ‘CPI Tuesday’ by analysts and traders.  

“The data could show UK consumer price inflation turning negative for the first time in March, meaning the Bank of England may have to continue with its dovish low rates policy for even longer.

“Investors now have two reasons to sell the pound.”

All signs point to a softer GBP profile in coming weeks.

However, we would caution that an all-out bear scenario on the UK currency is yet to be established.

We see it wise as viewing the current period of GBP softness within the context of a longer-term recovery.

Indeed, we expect that rally to ultimately commence, particularly against the euro.

Long-term traders could thus benefit from seeing these, and lower levels in coming weeks, as good entry levels.

Against the NZ dollar though we should be aware that gains will likely be harder to come by and would look at other currencies to back the GBP against.