Pound-to-New Zealand Dollar: Forecast, Data and Events to Watch in the Coming Week

Pound Sterling is currently consolidating against the NZ Dollar but we are watching for a break-out to the upside. However, this will be dependent on the outcome of various key data releases and developments at the UK's Conservative Party conference.

Pound Sterling opens the week flat against the New Zealand Dollar at 1.8563.

Looking at the charts, the exchange rate continues to consolidate between roughly 1.83 and 1.87 in a sort of box-shaped pattern.

There is an upside bias to the chart due to the pair being in an uptrend prior to the formation of the consolidation, which increases the chances of it breaking out higher afterwards.

Ideally, however, we would like to see a breakout above the box highs, confirmed by a move above the 1.8790 in order to gove the 'green light' to a move higher, up to a target at 1.8950 and the key May highs.

The MACD is growing feint and not giving a clear signal of movement in any direction in particular.

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Data and Events for the New Zealand Dollar

Data is not heavy for the Kiwi in the coming week and the most important release is probably the results of dairy prices achieved at the global dairy auction on Tuesday, October 3.

Dairy products are New Zealand's largest export and so dairy prices affect the aggregate amount of New Zealand Dollars required to purchase them. If the products go up in price it is positive both from a demand perspective and economically, also for Dairy farmers, who have struggled with falling prices recently.

There will be a survey of business opinion released on Tuesday, October 3 which is not typically market moving. However, it will be interesting to see how businesses have responded to the uncertainty posed by the recently-held general election.

“Confidence has taken a bit of a knock recently, with uncertainty around the general election clouding the outlook. We expect that this will put a dampener on the September confidence report, surveying for which was conducted in the run up to the election," says a note from Westpac Bank ahead of the release.

There is still potential for volatility if a coalition forms and the end of uncertainty could be expected to boost the Kiwi.

However, "post-election negotiations between the major political parties mean that the form of the next Government – and hence the mix of economic policy – won’t be known to the public for another couple of weeks," add Westpac.

The outlook for interest rates remains stable after the Reserve Bank of New Zealand suggested inflation would remain low for an extended time, and this weighed on NZD temporarily in the previous week.

Events and Data for the Pound

The main releases for the Pound in the week ahead will be September Purchasing Manager Survey data which will give us insights into the health of the manufacturing, constructing and service sectors for the month of September.

"Next week’s PMI reports will be exceptionally important. If manufacturing, service and construction activity accelerates, it would validate the BoE’s calls for tightening and reinvigorate the rise in Pound Sterling. However, if manufacturing- and/or service-sector activity slows, it would cast doubt on the central bank’s plans and cause the currency to give up some of the gains that it enjoyed in

September against the dollar and the euro," says Kathy Lien, Managing Director at BK Asset Management.

The first release is Manufacturing PMI on Monday at 9.30 BST, which is forecast to show a slowdown to 56.4 from 56.9 in the previous month of August.

Construction PMI is out at the same time on Tuesday and is forecast to show a slowdown to 50.8 from 51.1.

Finally, Services PMI is out at 9.30 on Wednesday and is forecast to remain unchanged at 53.2.

Politics will also be in focus with the Conservative party conference taking place in the first-half of the week.

However, it will be Prime Minister Theresa May's speech on Wednesday that has the most market-moving potential as she is expected to touch on the issue of Brexit.

May's speech on the issue of Brexit delivered in Florence on September 22 was widely credited with giving Brexit negotiations a fresh impetus with the outcome of the fourth round of negotiations showing fresh progress.

However, there is still much progress to be done and markets will be interesting if May is willing to deliver further clarity.

Furthermore, there are concerns May's position is in jeopardy with persistent talk of senior figures within the Conservative party willing to challenge her for leadership of the party.

It goes without saying that any successful challenge opens up the door to fresh uncertainty. If a new Prime Minister were to be installed over coming weeks or months the pressure for another general election mounts.

If there is one thing the Pound detests, it is uncertainty.

“We think the risk/reward of being long GBP is not attractive and prefer selling into rallies,” says Hans Redeker at Morgan Stanley. “The Conservative Party Conference in the coming week (begins at weekend) also poses a risk event, where signs of a split within the Tory Party may weigh on GBP as it raises concerns about PM May's leadership.”

It goes without saying that any successful challenge opens up the door to fresh uncertainty. If a new Prime Minister were to be installed over coming weeks or months the pressure for another general election mounts.

If there is one thing the Pound detests, it is is uncertainty.

"The UK’s Conservative Party Conference introduces downside risks for GBP. While attempts to extend the status-quo relationship to the transition period seemed to bode well for the currency, the Conference could provide a chance for a reassessment of the relative strengths of the leadership members, adding headline risks," say Barclays in a week-ahead note to clients.