Pound's Uptrend Against New Zealand Dollar Intact

There is little reason to question the uptrend in the Pound-to-New Zealand Dollar our mid-week technical studies suggest.

Despite much volatility in the preceding week cautioning against an overly bullish outlook, the GBP/NZD pair has risen and met our 1.83 target set in our week-ahead forecast published on Sunday.

The move up and out of the volatile range between 1.79 and 1.82 has reinvigorated the short-term uptrend, which we see extending even higher from here.

A break above the day's 1.8308 highs would confirm an extension higher.

The MACD indicator in the lower pane, which measures momentum, is progressively shadowing the exchange rate higher, indicating the rally has legs.

The Bank of England meeting on Thursday, September 14 could however shake up the charts as it is a high-volatility event.

The higher-than-expected inflation data out on Tuesday helped the Pound rally to fresh highs as it increased the chances the BOE will raise interest rates sooner than previously expected.

Analysts also appear to be favouring a 'hawkish hold' result, which means that although the BOE will not raise interest rates they will start talking about the possibility of raising them in the future.

The New Zealand Dollar, meanwhile, has faced steady headwinds from increasing political risk ahead of the September 23 elections.

Polls indicate a tight outcome which in turn creates the kind of uncertainty that currencies dislike.

One issue drawing on market nerves is most parties appear keen instituting reforms at the Reserve Bank of New Zealand (RBNZ) which could weaken the Kiwi should any changes prompt a shift to more accomodative and stimulative monetary policy.

The Labour party, for example, want to widen the RBNZ's mandate to include 'full employment' - this might result in the RBNZ in interest rates staying lower for longer, or even falling.

Meanwhile, the third largest New Zealand First party could be the 'kingmaking' coalition partner of the eventual government, and their hardline on immigration is expected to lower growth, also undermining the Kiwi.

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