Pound / New Zealand Dollar Rate Could be About to Rotate Lower After Strong Run
The New Zealand Dollar has been one bright spot for Sterling of late - the British currency has racked up a 2% advance over the course of the past month and many watching this market will be wondering if the strong run can extend.
The gains have come amidst a broad period of under-performance for the New Zealand currency which has been one of the better performers in global FX over the past year.
However, we note signs that Sterling's recent bout of strength could be about to fade.
GBP/NZD has been forming the outline of a triangle on the weekly chart - this is a technical signal that we find to have quite reliable predictive powers.
Currently, the pair appears to be completing the c-wave of the triangle and beginning the d-wave lower – triangles normally have a minimum of five waves so there is still all of ‘d’ and ‘e’ to go.
To more easily analyse the potential rotation taking place on the weeky chart we need to drill down to lower time frames.
The four-hour charts is illuminating in this regard and shows the pair currently selling off after touching the upper boundary of the triangle pattern.
The current bar is a long red down bar and could be the start of a new short-term trend lower.
Ideally, we would want to see a break below the previous trough lows at 1.7500 before forecasting a deeper decline, but such a break would open the way to a move all the way down to the lower border of the triangle at 1.7000, however, to be on the safe side we recommend 1.7200 as an initial target.
Data Ahead for the New Zealand Dollar
The main release for the NZD is the imminent Reserve Bank of New Zealand Interest Rate decision.
The universal consensus is that RBNZ will not implement any change in monetary policy or shift rates from their current 1.75% level, so whether or not the Kiwi will be affected will come down to what they write in the rate statement.
According to analysts at TD Securities a “twinge of hawk” will see a recovery in the Kiwi.
“Unanimous consensus expects the OCR unchanged at 1.75% and 12/14 expect 1.75% right through to year-end. The 4-5 paragraph statement is likely to be as neutral as possible as any tinge of hawk will see the end of recent NZD underperformance. Expect a contrast between solid domestic activity and risks of a potential trade war,” said TD.
There is a possibility of an upbeat tone given the recent endorsement from economists at ANZ who highlighted growth in the construction industry and robust demand due to the influx of immigrants as two major positives for the economy.
On Thursday, the Trade Balance is out at 21.45 GMT and is forecast to show a 160m surplus on a monthly basis in February, but a deeper -3,655m deficit year-on-year.
As far as UK data goes, Thursday could be a big day for the Pound with Retail Sales released at 9.30 GMT, and expected to rise 2.6% year-on-year and 0.4% month-on-month, and Core Retail Sales by 3.1% year-on-year and 0.4% month-on-month.
Retail Sales has been a poor performer of late due to rising shop prices from weak-pound induced inflation on imported products.
If there is yet another decline it will start ringing alarm bells for the economy and spell weakness for the Pound.
BOE’s Broadbent will also speak on Thursday, at 9.15, so we might get the first response from the BOE since the overwhelming inflation data.
