GBP/NZD: 5-Day Forecast

The GBP/NZD pair fell steeply following the UK's June election, in sympathy with the majority of Sterling pairs.

The sell-off was blamed on the uncertainty surrounding the Conservative party's failure to win a parliamentary majority and the threat this poses to negotiating a Brexit deal.

GBP/NZD weakened to a low of 1.7523 after the election, breaking through an important trendline, the neckline of the old double bottom and the 200-day MA on the way down (see below).

The short-term trend is now down, and technically it is poised to make fresh lows after breaking below the key levels noted above.

Another break below the 1.7523 lows would reinvigorate the downtrend and confirm a continuation down to the next target at the 1.7400 round number level.

Fundamentally, the New Zealand economy stands out as having much better prospects: New Zealand exports and export prices remain relatively robust, the labour market is healthy and inflation is rising.

But there is also a risk of a rebound from Sterling if the election chaos actualy results in a greater chance of a watered-down Brexit stance, as is now much more likely.

“The UK’s fundamentals and murky political outlook imply a weaker currency, but upcoming Brexit negotiations are key. A “softer” Brexit is now back on the table, which could help put a floor under downside risks,” say TD Securities in a note in which the highlight risks investors shorting the Pound could fall into a GBP ‘Bear Trap’.

Data to Watch for the New Zealand Dollar  

This week will see the release of key Q1 GDP at 23.45 on Wednesday 14, which should help pad out the picture for the economy.

TD Securities think the economy will have grown by 0.7% in Q1 from only 0.4% in the previous quarter – as does the consensus of analysts.

“We see strong consumption and construction offset by a slide in business investment (doesn’t appear to be properly seasonally adjusted) and a drag from net exports.  Temporary factors that dampened Q1 means there is upside to our conservative forecast,” said TD.

The positive tenor of the forecast seems to support the outlook for the currency in the week ahead.

Other major data includes the Current Account, which is forecast to rise by 0.92bn in Q1, from -2.34bn previously.

Data, Events to Watch for the Pound

Pound Sterling Live will be covering the political landscape and its impact on Sterling.

We see the prospect of a stronger Pound should the election outcome point to a softer-Brexit.

"The UK election outcome raises a potential for an alternative to the hard Brexit which was what PM May was seemingly pushing for," says Viraj Patel at ING Bank N.V. "The loss of the Conservative seats has exposed vulnerability to the strategy PM May was pursuing and leaves her very vulnerable within her party. She now needs to accept a broader range of views within the party to secure a leadership."

In terms of hard Brexit, which GBP crosses seems to be pricing in, it would be difficult to push it through the UK Parliament given the fragile Conservative-DUP confidence-and-supply deal.

"Hence, we see more room for re-pricing," says Patel.

ING are now actually willing to bet on a rise in the value of the Pound and "prefer to go long GBP against USD given our constructive EUR/USD view."

But, keep one eye on data for surprises.

A busy week for the Pound kicks off with May inflation data at 09.30 BST on Tuesday, which is expected to show a slower 0.2% rise compared to the 0.5% rise in April.

Employment data is out at 9.30 on Wednesday, June 14, and although the Unemployment Rate is forecast to remain at a very low 4.6%, it is the Average Earnings statistic which will be the centre of attention given economists concerns about falling real earnings impacting on consumer spending.

The May Retail Sales release is out on Thursday Morning a 9.30, and is forecast to show a dramatic slow-down, and even a -0.8% contraction compared to the previous month rise of 2.3%.

The Bank of England (BOE) rate meeting is on Thursday at 12.00 but no change in policy or voting is expected, and arch-hawk Forbes will not be present.

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