Pound Extends Gains Against New Zealand Dollar, seen at Fresh 8-Month High

The Pound has hit a fresh eight-month high against the New Zealand Dollar in mid-week trade having reached 1.8586.

The last time we saw such levels were back in July 2016 and confirms the recent period of appreciation in GBP/NZD remains intact.

The NZD/USD exchange rate has meanwhile fallen to a low of 0.6947 amidst a broad-based rout of the New Zealand currency.

"The NZD has been the worst performer of the G10 currencies and it’s difficult to see why. After failing to break up through 0.7050 resistance against the USD on Monday the NZD quickly reversed lower. Despite improved risk sentiment after the French election's first round outcome and an absence of any local economic data releases investors seem to be reacting to Trump's protectionist policies, with the US President due to announce tax reforms later today," says a note from HiFX's Aukland branch.

The declines in the Kiwi came amidst thin trading sessions in the antipodeans markets which were closed for Anzac day.

That the selling continued into the London and New York sessions and into the New Zealand and Australian opens on Wednesday April 26 more or less suggests liquidity is not the cause of the rout.

What has perplexed foreign exchange analysts is that the declines have come despite any domestic news to prompt the move.

So what is going on?

What we do know is that the declines in the New Zealand Dollar are being shared by other so-called commodity currencies i.e the Rand, Canadian Dollar and Australian Dollar.

This would suggest weaker prices in this sector might be at play.

But, a look at the markets confirms all base metals are performing decently, as are energy prices.

What is evident that the New Zealand and Australian Dollars have not performed well in this Macron-inspired risk rally. Could markets be shifting the relationship between AUD, NZD and risk?

This could be the case if we consider the improved global market environment does raise the possibility of the Fed raising rates sooner which tends to sup demand from the NZD and AUD as investor capital flows towards the US and demand for high-yield Aussie and Kiwi sovereign debt declines.

However there is no obvious driver to explain the move at present and we will keep our ear to the ground.

Pound Forecast Yet Higher

While fundamentals are not helpful, technical analysis certainly is.

Those who read our week-ahead piece on GBP/NZD would have seen these moves coming.

We wrote that the Pound was likely to extend gains against the New Zealand Dollar as technical momentum was now firmly in favour of the GBP.

We noted that the exchange rate had breached a trend-line and was therefore pointed higher.

This so far looks to be the case and our initial target stands at 1.89.

We would suggest momentum remains with GBP and expect the NZD to suffer further declines.

The fact the exchange rate is above both the 50 and the 200-day moving averages is another bullish sign.