GBP/NZD: Week-Ahead Forecast and Data to Watch

Modified: Monday, 15 May 2017 08:35 BST

Reference Rates:
1 GBP = 1.8763 NZD
1 NZD = 0.5329

The Pound to New Zealand's advance has been checked in recent weeks - is this the end of the line for Sterling bulls, or will the current consolidation we are seeing give way to a new phase of upside?

Our studies confirm GBP/NZD broke above a long-term trendline in April and since then has risen bullishly up to a peak at 1.8975.

Recently it has been consolidating within a box-shaped formation roughly between 1.8500 and 1.8900.

After this consolidation ends will the pair rise or fall? the trend is expected to continue higher, with a break above the 1.9000 confirming a continuation up to a medium-term target at 1.9500, although 1.9100 provides a nearer-term target.

Normally in a strong trending market the exchange rate continues in the direction of the trend after the completion of pauses or sideways activity. the trend is expected to continue higher, with a break above the 1.9000 confirming a continuation up to a medium-term target at 1.9500, although 1.9100 provides a nearer-term target.

In this case, therefore, the trend prior to the consolidation would be expected to continue higher, with a break above the 1.9000 confirming a continuation up to a medium-term target at 1.9500, although 1.9100 provides a nearer-term target.

Further, the pair may have formed a bullish flag pattern which informs our longer-term 1.9500 target since it is the target reached if the length of the pole is extrapolated higher from the top of the flag.

Bearish Indicators

Momentum studies are not confirming a bullish stance, however, and seem to be suggesting a more bearish outlook instead.

The RSI indicator has formed a bearish head and shoulders (H&S) topping pattern in the overbought region which suggests a phase of weakening momentum will follow.

It has broken back below the 70 overbought level in the process generating a sell signal.

The MACD has crossed its signal line and has been falling during the formation of the box/flag consolidation pattern.

We are, therefore, bullish but cautiously so, and without conviction.

Data for the New Zealand Dollar

Retail Sales data is out for the New Zealand Dollar on Sunday morning and is expected to rise by 1.1% in Q1 from 0.8% previously, and 0.9% from 0.6% previously for Core Sales.

The Global Dairy Trade Index was out on Tuesday, May 16.

Dry Whole Milk is New Zealand’s main export and its price fluctuations, fixed at the fortnightly auction often impact on the currency.

Data for the Pound

Retails Sales, on Thursday, May 18 at 9.30 (BST) will probably be the most significant release in the week ahead as it covers the UK economy’s current weak spot.

Consumer spending has slowed in the first quarter as the weak pound has put pushed up the price of many imports leading shoppers to limit the size of their baskets.

This slowdown in the high street is a major concern as if it continues it will depress economic growth significantly given that it accounts for the largest proportion of GDP.

Slower growth will lessen even further the likelihood of the Bank of England (BOE) bringing forward the time when they will raise interest rates.

Given relatively higher interest rates tend to attract more capital flows which increase demand for a currency the pound stands to lose out if the BOE adopt a more dovish tone – which by dovish means more inclined to cut rather than raise interest rates.

Inflation data, on Tuesday, May 16 at 9.30 is the other major release for the currency, as it too could impact on rate setting.

Headline CPI is expected to show a 2.6% rise compared to April last year and 0.4% on a monthly basis.

Unemployment and Earnings data are out on Wednesday at 9.30 and are forecast to show earnings rise by 2.4% compared to March 2016 whilst the unemployment rate is expected to remain unchanged at 4.7%.

The change in those seeking unemployment benefits, meanwhile, is expected to show a rise of 5k in April.

All three of these releases could impact heavily on sterling if they come out very different from expectations, with Kathy Lien of BK asset management, for one, seeing an upside bias to the releases:

“We expect most of these reports to surprise to the upside, particularly the labor data as the PMIs report some of the strongest conditions in the labor market this year,” said Lien.