GBP/NZD: Technical Forecast for Coming Week

The Pound looks poised to rise against the New Zealand Dollar in the week ahead after reaching a significant layer of chart support from which to launch a new phase of rallying higher.

Pound-Kiwi has pulled back after reaching highs of 1.9000 in May.  

It has fallen to a long-term trendline which is likely to provide underpinning support for the exchange rate and limit further downside.

The correction is a classic three-wave a-b-c pattern, which looks like it has finished forming the final ‘c-wave’.

There is now a heightened chance it will begin to recover and rise in line with the previous short-term uptrend which began at the 1.6507 September 2016 lows.

We would first want to see a move above the previous 1.9000 highs for confirmation of a bullish continuation, however, before expecting a continuation higher, with the first target situated at 1.9100.

Data and Events for the New Zealand Dollar

The main event will be the Reserve Bank of New Zealand (RBNZ) interest rate meeting at 22.00 BST on Wednesday, June 21.  

The resilience of the New Zealand economy has not gone unnoticed by economists who note how well the country’s soft commodities have done compared to oil and iron ore.

Yet despite this the RBNZ is expected to remain neutral and not entertain the prospect of raising interest rates, mainly it is said because they want to avoid appreciating the New Zealand Dollar weak.

“We expect the statement to replicate the tone of the May MPS, noting global risks remain tilted to the downside while commodity prices, migration, consumer spending and housing remain solid.  The weaker Q1 GDP print  buys the Bank some breathing space, as RBNZ Governor Wheeler is determined to remain neutral until his contract expires in late September,” said Canadian investment bank, TD Securities.

After that, the main event will be the fixing of the Global Dairy Trade Price Index on Tuesday June 20, when there is the bi-weekly  global auction of dairy products.

A rise in dairy prices will drag up the value of the New Zealand Dollar; a fall will weigh.

The recent run of prices has been overall positive.

Data and Events for the British Pound

There are no major data releases due so the main event of the week will be the start of Brexit negotiations on Monday, June 19.  

Britain's Brexit minister David Davis and the European Union's chief negotiator Michel Barnier will start negotiating Britain's departure on Monday, starting a two-year divorce process due to end by March 2019.

Major issues that will be discussed, include, the size of a "divorce" bill, how the U.K. will trade with the EU once it leaves, and the status of EU nationals and Britons living in the EU.

Markets now assume British Prime Minister Theresa May's failure to secure her party a majority will lead to a softening of the government's Brexit stance with a greater priority being placed on securing a closer trading relationship with the EU.

Fighting for her political survival, May has been trying to strike a deal with the Democratic Unionist Party, but there is still little clarity on the status of the relationship, although currently it appears to be along the lines of a loose coalition.

Following Thursday's surprisingly hawkish MPC debate, where 3 members voted for a 25bps hike in rates and where the minutes took a hawkish tone, "markets will be on the lookout for any comments from BoE officials. Note that Governor Carney’s postponed Mansion House speech will be rescheduled," says Victoria Clarke at Investec.

The week will likely be dominated by politics once again, particularly so given that the economic data calendar is very quiet.

The domestic focus will be on whether the Conservative Party reaches a final deal with the DUP over a confidence and supply agreement, which would provide the government with a narrow majority in the House of Commons.

Reports this week have suggested that a deal between the two parties was close, but that due to the tragic fire at Grenfell Tower a conclusion would be delayed until next week.

Also due next week is the Queen’s Speech which has been rescheduled to Wednesday.