Outlook for New Zealand Dollar Marred by Fall in Dairy Prices

GBP/NZD, like most sterling pairs gapped down at the start of the week before rebounding on Tuesday, following Theresa May’s Brexit speech.

The rebound traced out a three-wave corrective pattern before pulling back at the monthly pivot, a resistance level often identified by traders as a place to fade the trend.Still beneath the pivot, the pair has since encountered further selling pressure at the 50-day moving average and recoiled.

Still beneath the pivot, the pair has since encountered further selling pressure at the 50-day moving average and recoiled.

The gap down, followed by the strong move up on Tuesday, which was one of the biggest in Sterling’s history, suggests a reversal.

A break above the 1.7252 highs, however, would provide important corroborative evidence sanctioning a change of the short-term trend, as it would indicate a change in the market structure and rising highs and lows.

The monthly pivot at 1.7242, just beneath the highs, is a tough level of resistance and, ideally, we would want to see a break clearly above that level – above 1.7300 in fact, which would probably lead to a continuation up to 1.7400 – the next major round number.

Dairy Prices Churn

Those expecting a boost to the New Zealand Dollar (Kiwi) from rising dairy prices will have been disappointed by Tuesday’s Global Dairy Auction which showed only a marginal 0.6% rise.

This also came after a disappointing -3.6% fall in the previous fortnight.

This seems to have indicated that the trend in soft commodities has stalled, which could take the wind out of the Kiwi’s sails.

Strong Wage Data Supports

Data out on Wednesday showed a higher than expected rise in average wages in the UK of 2.8%.

This is likely to help offset fears that rising inflation squeezing household budgets, and provide Carney and the Bank of England (BOE) with more amplitude to raise interest rates if necessary.

However, it was not sufficient to allay concerns that rising inflation could squeeze household budgets and limit growth.

Brexit Speech Taken as Positive for Sterling

Sterling strengthened after Theresa May’s speech mentioned the involvement of Parliament in the process of Brexit.  

Nevertheless, despite this concession, there were also signs in her speech that her stance had hardened and that ‘Brexit would mean Brexit’ without retaining “bits of the EU”.

Her inference was that the UK will completely divorce from membership of the EU and the common market and then try to negotiate a free trade deal.

Her comments further supported Sterling, as it suggested both an economically and politically expedient outcome.

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