Pound to Maintain Advantage v New Zealand Dollar Confirm Technical Studies
The Pound has pushed higher against the New Zealand Dollar as easing UK political risks supported Sterling after Theresa May’s government narrowly won a vote of confidence with the help of the DUP and regained power.
At the time of writing the GBP/NZD exchange rate is at 1.7750 having been as low as 1.7340 in late June.
A shift in tone amongst policy-makers at the Bank of England regards to the timing of an interest rate rise has further cemented the floor underneath Sterling.
Bank of England Governor Carney had been fervently dovish, saying that he was against raising interest rates, however, he softened his stance at a meeting of central bankers in Sintra, Portugal last week where he suggested there may be circumstances in which raising rates might be appropriate.
It is possible that a speech from governor Carney (13.00 BST on Monday, July 3) could reveal a change of stance from the Bank of England.
Technicals: GBP Bullish
Technically, the pair is bullishly inclined despite much uncertainty in relation to Sterling.
Looking at the monthly chart - which covers the long-term horizon - we note that further gains are likely:
The last two months of May and June, have both been down months which have occurred within an up-move which began at the October 2016 lows.
This suggests they were probably corrective in nature, and research has shown that when two consecutive down-months happen within an up-trend the next month has a higher probability of being bullish.
The set-up accurately predicts that the next month will be a green up-month to a 66% degree of probability.
There is, therefore, a higher than evens probability that we are beginning a bullish month for Sterling against the New Zealand Dollar.
Also looking at the monthly chart, we note how the exchange rate finished a clear a-b-c move, also known as a measured move, when it formed the October 2016 lows.
The pattern is clearly delineated and waves ‘a’ and ‘c’ are of roughly equal length.
When an a-b-c pattern finishes it is often a sign a change of trend will occur afterwards, which further adds weight to the evidence that we are at the start of a new uptrend for the pair, and that July will be bullish.
The daily chart shows the pair has broken above the 200-day moving average which is a bullish signal for the near- to medium-term timeframes:
It has posted three consecutive strongly bullish up-days (circled) in a row – a sign that the short-term downtrend might be reversing.
The MACD indicator (circled) in the bottom panel has crossed its signal line and appears to be moving higher, indicating that the pair is likely to move higher.
The evidence suggests an upside bias and we would look for a break above the 1.7875 highs to confirm a move higher, with an initial target at 1.7970.
Data for the New Zealand Dollar
New Zealand Data includes the NZIER Business Confidence survey in the second quarter at 23.00 on Monday, July 3.
The all-important Global Dairy Trade price index is out on Tuesday, July 4.
Recently dairy prices have been trending higher supporting the NZD, and a further move up in prices which are fixed at the fortnightly auction would likely solidify the improved outlook and further benefit the NZD.
Data for the Pound
The next week is dominated by PMI survey data for June, which shows monthly changes in activity in key sectors of the economy.
PMI’s are plotted on a gauge, with a result below 50 representing contraction and above 50 expansion.
On Monday at 9.30 BST Manufacturing PMI is released and is expected to tick down to 56.5 from 56.7.
On Tuesday at the same time Construction PMI is forecast to fall to 55.00 from 56.00.
Finally, on Wednesday the most important PMI for the Services sector is forecast to show a fall to 53.5 from 53.8.
The results will be analysed within the context of ongoing concerns about growth given the sharp slowdown which has occurred on the high-street and the fall in real wages.
Investment bank TD Securities see a chance of an even deeper undershoot than consensus, with Manufacturing falling to 55.7 rather than 56.5 and Services to 52.8 rather than 53.5.
“Given the political uncertainty that came out of the general election, we look for a decline in the June PMIs, though much more moderate than the post-Brexit shock last year. We saw the first hint of that kind of reaction with the GfK consumer confidence survey, which saw a fairly sharp decline in June.”
Clearly a surprisingly weak figure will hurt sterling.
Other data includes Manufacturing and Industrial Production, the NIESR GDP Estimate and Halifax House Prices, all out on Friday at 09.30 BST.
