New Zealand Dollar Predicted to Lose Further Ground to Pound, Despite Seeing Strength Elsewhere

The Pound to New Zealand Dollar exchange rate finds itself amidst a short-term uptrend, established after basing at the January 16 lows at 1.6831.

I believe there is little to obstruct a continuation of the uptrend higher until you reach the S1 monthly pivot at 1.7520 and the 50-day MA in the 1.7580s.

The monthly pivot is a level where traders like to fade the trend in anticipation of a pull-back or reversal.

The 50-day moving average can also act as a tough level of resistance preventing the exchange rate from advancing.

GBP/NZD is currently trading in the higher 1.73’s but a break above 1.7400 would. for us, confirm a continuation higher towards the next target at 1.7500, just below the pivot and MA.

MACD is crossing its signal line, which is mildly bullish, but a move above the zero-line would be a stronger upside signal.

Inflation Data Fuels New Zealand Dollar Strength

Beware the NZD - it will be no push-over.

While the relief-rallying Pound was able to get the better of the NZ Dollar, other majors were not so lucky.

The New Zealand Dollar's strong 2017 against the US Dollar and Euro extended after the release of better-than-forecast official inflation data.

According to Statistics New Zealand, CPI read at 0.4% for the fourth quarter 2016, ahead of analyst expectations for a reading of 0.3%.

Annualised inflation now sits at 1.3% and is therefore within the Reserve Bank of New Zealand's 1-3% band.

Recall that the RBNZ justified recent interest rate cuts owing to inflation's fall below 1%?

Now that New Zealand, and indeed global inflation, is returning, does the RBNZ now have to embark on raising its already high basic interest rate?

This is a pertinent question as if the answer were to be 'yes' then the NZD could really find some more upside impetus. 

"This has reinforced New Year strength in the currency, which, as alluded to earlier, is something the RBNZ could well fret about all over again, as excuse to run over-easy OCR policy. Until, that is, it gets a more obvious wake-up call from inflation and/or financial stability threats," says Craig Ebert at BNZ.

For the meantime, with the Bank still having to go through its processes, BNZ simply expound the risk of the RBNZ increasing its cash rate as soon as this year, rather than move to this as their base case.

"We certainly think the pressure’s building, however.." says Ebert.