Pound-to-New Zealand Dollar Rate: Technical Forecast, Data and Events for the Coming Week

GBP/NZD is ultimately seen extending its 2017 rally but patience might be required in the near-term as the uptrend is losing steam.

The Pound-to-New Zealand Dollar exchange rate is approaching the chart milestone of 2.0 NZD to 1.0 GBP, as we begin the new trading week.

At the time of writing the pair is quoted at 1.9665, taking the gains made in 2017 to 10.6%. 

Across all timeframes momentum now rests with the Pound, and on this basis alone we see reason to expect further Sterling strength.

The pair remains in an intact uptrend despite some weakness at the start of the new month when the exchange rate pulled back from the highs, falling from a high of 1.9843 to 1.9566.

We expect the pair to recover quickly and continue moving higher, with a break above the 1.9843 highs confirming a move up towards the next target at 2.00. 

It is acknowledged that a steadily weakening momentum, confirmed by a failure to make a new high along with the exchange rate at its most recent peak, is indicative of a weakening trend, but on its own is not enough of an indicator to necessarily expect the uptrend to end. 

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Data and Events for the New Zealand Dollar

Data highlights for the New Zealand Dollar in the week ahead begin with a speech by Central Bank of New Zealand (RBNZ) governor Spencer, on Tuesday at 00.15 GMT.

The RBNZ sets interest rates in New Zealand and these have a direct impact on the Kiwi.

Higher interest rates boost the Kiwi by attracting greater inflows of foreign capital due to the promise of higher returns, which increases demand for the Kiwi.

Spencer may also shed more light on the new developments affecting the RBNZ due to the change of government.

These include the RBNZ having an additional mandate to cultivate full-employment and for the decision making to be via committee rather than solely by the governor as is the case currently.

Both these potential reforms are seen as possibly leading to slightly lower interest rates on balance and are therefore marginally negative for the Kiwi.

The other major release in the coming week is the fixing of global dairy prices via the Global Dairy Trade Auction on Tuesday afternoon.

The previous auction, a fortnight ago, saw prices fall by -3.4% and prior to that by -3.5%, so investors will be looking for an end to this rout, or else the Kiwi could weaken, since dairy products are the country's key export so a fall in their price will reduce aggregate demand for the Kiwi, as well as cause economic hardship for New Zealand dairy farmers, who are already struggling due to historically low prices.

Data and Events for the Pound

The main fundamental drivers dictating price action at the moment are political in nature and focused on the twin concerns of how Brexit talks are going, and how stable the government is, and this is likely to continue in the week ahead.

The Pound rose last week on news the deadlock in Brexit negotiations had been broken, and the two sides were close to agreeing on a divorce bill, the Irish border, and citizen rights. Should this be confirmed at the mid-month European Council meeting of E.U. leaders talks will be allowed to move onto the more important subject of trade.

Yet, ultimately nothing has been confirmed and the Pound has risen on hearsay alone so there are risks of disappointment.

There is a possibility more concrete confirmation may be forthcoming in the week ahead when Theresa May visits Brussels to talk 'turkey'.

"Next week, May heads to Brussels to meet with Jean-Claude Juncker and this is her first opportunity to provide the U.K.'s divorce bill offer and to talk about their plans for the Irish border. Then on December 6th, EU ambassadors resume preparations for the summit," says BK Asset Management Managing Director and forex guru Kathy Lien.

The other main political driver impacting on the Pound is the stability of the government.

From a hard-data perspective, the week opens with Construction PMI at 9.30 GMT on Monday, December 3 which will give us insights into how the sector fared in November.

The consensus amongst analysts is that it will rise to 51.0 in November, from 50.8 in October.

Services PMI is on Tuesday at the same time and is forecast to fall to 55.0 from 55.6 previously; this is the most important reading of the week as the services sector accounts for more than 80% of U.K. economic activity.

Analysts at TD Securities think the market is underestimating the sector and a pro-Sterling result beat on expectations could be delivered:

"We look for upside risks to the November Services PMI. Spillovers from optimism in the manufacturing sector (where business-to-business activity has remained strong) as well as from the rest of Europe (where the PMIs and growth are accelerating into year-end) should help support optimism in the sector."

The week ends with the Trade Balance and Industrial and Manufacturing Data out at 9.30 on Friday, December 8.

The trade deficit is expected to widen slightly to -11.5bn in October from -11.25bn and confirm the country's hefty reliance on imports remains intact; something that concerns analysts who believe the Pound could one day have to adjust materially lower in order to balance the situation.

Both Manufacturing and Industrial production are forecast to rise by 0.1% in October; disappointment here could see Sterling end the week in soft fashion.

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.