5-Day Outlook for the GBP/NZD Exchange Rate: 'Bearish Connotations'

Modified: Monday, 06 March 2017 07:50 GMT

The British Pound trades with an assertive tone against the New Zealand Dollar at the start of the new week.

GBP/NZD was declining in a long-term trend but over recent months it has started going sideways instead.

The question now is in which direction this side-ways-orientated period of consolidation resolves - a break higher or a break lower into fresh all-time lows.

This sideways market has started to trace the outline of a triangle pattern on the weekly chart.

The triangle has bearish connotations.

Triangles normally have five waves sometimes more, but a minimum of five waves.

This triangle is currently completing its ‘c’ wave, which looks unfinished and will probably move higher, finishing at the upper border at around the 1.7750 level.

The fact the pair is in a dominant long-term downtrend indicates a higher probability that the triangle will break bearishly rather than bullishly.

Triangles are often the second from last move within a bigger trend.

This could mean that there may only be one more wave of selling after the triangle before the broader downtrend reverses.

A break below the 1.6796 lows would confirm a breakout towards a target at roughly 1.6000, calculated from extrapolating the height of the triangle at its widest point down from the break; the level is also targeted because it is a major round number and therefore is expected to attract disproportionate demand.

Another feature on the chart is the rare Death Cross (circled) formed by the 50-week moving average crossing below the 200-week moving average is a highly bearish sign too, further increasing the probabilities of more downside in the future.

At the time of writing the GBP to NZD exchange rate is quoted at 1.7518 on the inter-bank market. Those with international payments to make are likely to see their bank offer an exchange rate in the vicinity of 1.70-1.7050. Independent payment providers are likely to quote closer to the market at 1.73 for the same transfer.

Data for the New Zealand Dollar in Next Five Days

There is no tier one data out for the New Zealand Dollar (Kiwi) in the week ahead and therefore the main release is probably the Global Dairy Trade (GDT) Auction which fixes prices for dried whole milk on a bi-weekly basis and is important because it is New Zealand’s single largest export. It is normally released sometime on Tuesday morning and usually impacts on the Kiwi, at least marginally.

At the last GDT prices fell -3.2% leading to a minor move lower for the Kiwi but a more sustained fall could trigger even deeper weakness as two poor GDT's in a row would raise longer-term concerns.

Apart from that, there is little else of note, although traders will get a snapshot of an aspect of the vogueish New Zealand property market on Sunday evening at 21.45 GMT when Building Consents in January are released.

Data for Sterling

News that the Chancellor may be increasing taxes in his Budget on Wednesday, March 8, may weigh on the Pound if the measures are seen as inhibiting growth and consumption.

Fiscal tightening would stand in contrast to the policies being implemented in the US by Donald Trump's administration, for example, who are expected to cut taxes and spend more on infrastructure.

On Tuesday, March 7 there is the release of tier two data in the form of the Retail Sales Monitor from the British Retail Consortium (BRC).

It is a survey rather than a hard data release but sentiment indicators are still often quite reliable indicators of future activity.

The monitor, out at 00.01 (GMT) is expected to show a 0.2% rise in February from the -0.6% decline in Jan.

Overall recent UK data has been described as soft, and this combined with the resurfacing of fresh Brexit risks relating to calls for a Scottish referendum are have been weighing on Sterling.

Whilst the cost to England of a Scottish break off have not yet been estimated by analysts there is an argument to say they may be roughly balanced with the gains since Scotland enjoys a disproportionate slice of the budget for its size.

Nevertheless currently the market is of the opinion that the related uncertainty caused by Scotland is negative for Sterling so more losses may be on the horizon as the narrative unfolds.

“Sterling fell hard this week as data took a turn for the worse. After a month of very narrow trading ranges, sterling finally broke down on the heels of softer data.

Aside from slower service-sector activity, manufacturing activity also eased in February and between the stronger U.S. dollar, Scotland pushing for another referendum vote and Brexit's Article 50 later this month, it was only a matter of time before the bottom underneath sterling fell out. Now that support has been broken, we anticipate further losses in GBP,” commented Managing Director of BK Asset Management, Kathy Lien in a recent note seen by PSL.

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