GBP/NZD Tipped to Edge Lower According to Mid-February Technical Analysis
The New Zealand has dominated the Pound Sterling through 2017 ensuring the GBP/NZD has fallen 2.8% since January 1.
However, the declines would be worse were it not for the Pound's recent recovery.
Indeed, the Pound to New Zealand Dollar exchange rate appears stuck in a range between 1.68 and 1.75:
Our job is to put our necks on the line and make a call as to where the pair could be headed next.
We note the range sits below a major trendline and the 50-day moving average increasing resistance at the highs which suggests the Pound is unlikely to gain any traction in the near-term.
Recently the pair rose to touch the 50-day and the trendline at the range highs but has since pulled back with supply increasing as sell orders were triggered around this key technical level.
The longer-term bearish downtrend means there is a marginal bias to a continuation lower we believe.
However, one could also argue the pair may be overstretched since it is at record lows. Nevertheless, given the longer-term trend is pointing lower, we can assume it will probably continue that on balance.
As such, a move below the base of the range and the S1 monthly pivot at 1.6719 would signal a continuation lower.
Such a move would gain confirmation from a break below 1.6650, which would probably lead to an extension down to the next round number at 1.6500.
News and Data for the New Zealand Dollar in the Second Half of the Week
The main releases for the New Zealand Dollar are Retail Sales and Core Retail Sales on Thursday. February 16 at 21.45 GMT, as well as the Business Purchasing
Manager’s Index in January at 21.30.
Retail Sales in January is forecast to show a 1.0% rise quarter-on-quarter (qoq).
Consensus estimates are not available for the others.
Sterling Struggles on Earnings Data, Retail Sales Next
The Pound weakened on Wednesday following worse than expected average earnings data which came out at 2.6% instead of the 2.8% expected (and 2.8% previously), in January.
Earnings are indicative of inflation and therefore future monetary policy from the Bank of England (BOE).
A rise in earnings leads to higher inflation, leads to the BOE raising interest rates and this pushes up the Pound because more foreign investors are likely to transfer their capital to the UK to receive the higher interest return being offered there.
Currently the usual relationship between inflation and earnings, however, appears to have broken down, because inflation is being pushed higher, not by more spending, but by the weak Pound, which has pushed up the cost of imports.
The slowing wage recovery is weakening the Pound because it could slow economic growth down as people will have less spare cash to spend due to wages not rising as fast as inflation.
“The trouble is inflation is rising at an anti-Goldilocks rate - neither bad enough nor mild enough. It's not fast enough for the Bank of England to hike interest rates, nor slow enough to stop economists fretting about its growth-sapping erosion of consumers’ buying power," says said David Lamb, head of Dealing at FEXCO.
“With average wages now rising only a shade faster than prices, the wheels could fall off the consumer boom that has so far powered the UK economy through much of the post-referendum turbulence,” says Lamb.
This feeds into the next major release for the Pound, on Friday February 17, when Retail Sales for January is published at 09.30 GMT.
Analysts are expecting a slowdown due to wages not rising as quickly as previously and therefore people consuming less.
Of course, the rising cost of imports may also be putting shoppers off due to rising price-tags.
Nevertheless, consensus estimates are for Retail Sales year-on-year (yoy) to show a rise of 3.5%, and 1.0% month-on-month (mom).
Core Retail Sales are forecast to rise by 3.8% yoy and 0.7% mom.
