GBP/NZD Forecast for the Next Five Days
GBP/NZD has risen strongly after a mixture of easing Brexit concerns and the weakening commodity prices weighed on the outlook for the New Zealand Dollar.
Over the past month the exchange rate has risen a staggering 5% which confirms momentum rests in Sterling's camp at present.
The exchange rate has formed a double-bottom on the weekly chart and has almost reached the initial target at 1.8875 (it is currently at 1.8855).
The exchange rate is above the 50 and 200-day moving averages (MA) which is a bullish sign.
The MACD is rising strongly and has moved above the zero-line on the weekly chart which signals the pair is probably in an uptrend.
There is a risk the pair could stall now, however, as it is close to the target generated by the double bottom at 1.8875.
Data for the New Zealand Dollar
The main release for the Kiwi in the week ahead is employment data which is expected to rise by 0.8% in the first quarter.
The Unemployment Rate is forecast to remain at 5.1%.
The, “ANZ BOS Q1 employment net balance at +23 was similar to Q4 and so we expect similarly upbeat jobs growth of +0.7% quarter-on-quarter. Assuming a still lofty participation rate of 70.4% edges the unemployment rate down to 5.1%, closer to full employment," say TD Securities in a note surveying the week ahead.
More importantly from a currency perspective is whether or not this tightening in the labour market spurs wage growth.
If wages are picking up at a robust pace we would expect the Reserve Bank of New Zealand to consider raising interest rates in the future.
New Zealand's superior interest rate, when compared to other developed markets, makes it a destination for foreign investor flows. This has been a pillar of NZD strength for many years now.
The promise of higher rates in the future will likely reignite this flow which has suffered of late as other central banks look towards raising their own interest rates.
However, most analysts don't see the RBNZ threatening interest rates in the foreseeable future, but the employment data might give some hints as to when this might change.
Data for the Pound
A new month means fresh data in the form of the trio of UK Purchasing Manager Surveys (PMI) for Manufacturing, Services and Construction.
These are the most timely economic data releases available and will give us a view of how the UK economy performed in April.
Both Manufacturing, on Tuesday at 9.30 GMT, and Construction, out on Wednesday at the same time, are forecast to fall by two basis points to 54.0 and 52.0 respectively.
Services, out on Thursday at 9.30, is expected to fall more steeply to 54.5 from 55.0 previously.
The recent downturn in UK economic activity means markets will be watching whether the trend continues with PMIs.
“Markets are looking for a bit of a pull-back in the PMI’s, and we’re just modestly more optimistic on balance,” said TD Securities in a review of the week ahead.
We doubt that disappointment will feed into any sustained pressure on Sterling though as the currency appears to be more concerned with global investor dynamics and domestic politics at present.
