BofA New Zealand Dollar v Pound Forecast
Strategists at Bank of America Merrill Lynch Global Research are forecasting the pound will be one of the top performers against the New Zealand dollar with an exchange rate of 2.44 being possible.
The New Zealand dollar has struggled under the weight of speculation on the potential of a Reserve Bank of New Zealand interest rate cut sometime in 2015. This idea is a new one for currency markets that have persistently priced the NZD higher on the assumption that no cut would occur.
Cutting the interest rate would reduce the yield offered by New Zealand assets, global money flowing into the country will likely fall and the currency will devalue as a result.
According to the Bloomberg WCRS page, the New Zealand currency is the worst performer on a Month-To-Date basis as currency markets scramble to cut exposure to the NZ dollar. The pound to New Zealand dollar exchange rate conversion has risen from a low of 1.9306 in April to record a best of 2.1405 in May.
Looking to profit on the potential of a NZD decline ahead of any interest rate cut is strategist MacNeil Curry at Bank of America Merrill Lynch Global Research. Curry, who basis his prediction largely on technical chart considerations, says the kiwi dollar is particularly susceptible to the pound and Australian dollars.
Curry says the Kiwi is turning long term bearish against these two currencies. “£/NZD has completed a 3.5yr head and shoulders base, which targets the confluence of resistance between 2.14121/2.4444 while the impulsive gains in AUD/NZD from 1.0020 says that its long term trend is turning higher, ultimately targeting the multi-decade range highs at 1.3566.”
While BofA will await a pullback in AUD/NZD to the 1.0500/1.0400 area before buying, it is time to begin initiating along in £/NZD following a recent close above 2.1049.
“Initial upside targets are seen to 2.2531 ahead of 2.444/2.4121. Pullbacks should be limited to 2.1049 and can’t break 2.0838. Buy £/NZD at market (2.1278), add at 2.1120 & 2.1050, risk 2.0830, target 2.2531,” says Curry.
While some in the market are worried about a NZ interest rate cut it is worth pointing out that this view is not unanimous. BNZ has told clients they believe the RBNZ will adopt a wait-and-see approach and ascertain whether data has deteriorated enough to prompt a rate cut.
For now, analysts believe data has not deteriorated enough to warrant such a move. If this becomes more apparent to others in the market we could well see the NZD stabilise.
