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

Technical studies suggest GBP/NZD is likely to extend higher, but a global auction in dairy products and the UK budget could provide volatility this week.

The Pound-to-New Zealand Dollar exchange rate is rising within the auspice of what is now an established uptrend, defined by the recording of higher highs and higher lows on the charts; it also recently reached the key 1.9500 level, our target from the previous week.

In the absence of any reversal signals, we expect the trend to continue rising, with a break above the 1.9538 highs signalling a continuation to the next target at 1.9750, the midpoint between 1.95 and the next major level at 2.00:

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Data and Events for the New Zealand Dollar

The two major releases of the New Zealand Dollar are the Global Dairy Trade Auction which fixes prices for all important dairy products on Tuesday, November 21, at 15.30 GMT and Retail Sales on Thursday.

At the last global dairy auction on November 7 prices fell by 3.5% (Whole Milk Powder at $2852) - which is considerably more than the average, and if they fall by as much again, it will impact negatively on the Kiwi.

At the next auction prices should stabilise, so there is less risk of a downturn, says ANZ Chief Economist Philip Borkin. 

"There are some jitters over rising global supply, but we expect whole milk powder prices to be supported close to US$2,800/tonne," says Borkin. 

Retail Sales data for Q3 is out at 21.45 and is forecast to show a 0.4% rise and 0.9% for Core retail sales - compared to the previous quarter.

"Following the strong Q2 outcome we expect Q3 sales volumes to be flat given weak credit card purchases in recent months," says Toronto-based TD Securities.

Migration Data out on Wednesday is expected to already start showing a downturn in migration even without new policies curbing number having been implemented yet.

Overseas Merchandise Trade on Friday is forecast to show a deficit of 760m and New Mortgage Lending, also out on Friday is expected to be "steady and a lower level" according to ANZ's Borkin. 

Data and Events for the Pound

The most significant event of the week ahead is the Autumn Budget statement on Wednesday, November 22 which will prove important in terms of the credibility of the UK Government, and the economy's potential growth trajectory.

From a currency perspective, the stability of Theresa May's Government is key; markets like stability and recent months have shown the Government to be anything but.

The budgets is often a 'danger time' for the Government as popular support has often proven to be attuned to the success of a budget - recall George Osborne's 'omni-shambles budget' of 2012 where support for the Cameron Government slipped notably on perceived policy blunders presented in that budget.

"It is critical not only for the Government’s self-imposed fiscal goals (2% deficit by 2021, balanced by mid-2020s) but the survival of May’s Govt. due to mounting political pressures domestically and around Brexit," says Tim Riddell at Westpac.

"A successful budget could relieve some pressures with a sound fiscal hand, support struggling parts of the population and strained public departments (NHS, education, security, et al,) and even allow for a firmer approach towards Brexit," says the analyst.

Also of importance to the Pound is whether the budget is growth-friendly or not - if it is, it could help strengthen the Pound.

There is a possibility the budget could include more generous public spending, especially on housing, and if so, this has the potential to boost the Pound.

Increased public spending tends to increase economic activity, which can generate growth, inflation, and then higher interest rates.

Higher interest rates tend to boost the Pound by attracting more capital inflows from foreign investors seeking somewhere to park their money where it will earn higher returns.

"The chancellor has come under increasing pressure to deliver a popular ‘big and bold’ budget that includes increased spending as a means of reviving spirits in the struggling and divided government," says a briefing from TD Securities.

The politics of Brexit could also continue to impact on Sterling as EU leaders are scheduled to meet to discuss whether progress in divorce proceedings has been sufficient to allow discussions to move on to the all-important future trade relationship.

"In the near term, UK politics will likely be the main driver of GBP. In fact, GBP’s reaction to UK politics and our Brexit stress tracker is rising again," says Yujiro Goto of the Global FX Strategy desk at Nomura.

Although the size of the divorce bill remains a key sticking point there are signs the two sides are moving closer to a middle ground following reports from EU council head Donald Tusk that he found recent discussion with Theresa May surprisingly positive.

Any announcement of an agreement or being close to an agreement on the divorce bill would be extremely positive for the Pound.

The main hard data release is public spending figures for October at 9.30 GMT on Tuesday, November 21.

Public Sector Net Borrowing which is the difference between what the government earns in revenue and what it spends is expected to rise to 6.6bn, however, recent results have generally undershot expectations and a lower-than-expected amount might support Sterling marginally by providing the Chancellor with more room to manoeuvre in his budget on Thursday.

 Get up to 5% more foreign exchange by using a specialist provider by getting closer to the real market rate and avoid the gaping spreads charged by your bank for international payments. Learn more here.