Our Pound-to-New Zealand Dollar Rate Forecast for the Week Ahead
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The GBP/NZD exchange rate looks poised to rise up to the November highs as it resumes its uptrend following the recent correction lower.
The Pound remains locked in a long-term uptrend against the New Zealand Dollar, a move which began at the start of 2017 and despite correcting back since the November highs, the uptrend remains intact and will probably continue rising we believe.
We reach this conculsion based on our latest technical studies - studies that look purely at the structure of the market to decipher potential future price action. The pair has found support at the May 2017 highs and has started to resume its uptrend, and we expect it to rise back up to the 1.9840 highs eventually.
The pair has pulled back substantially since the highs were reached however and our technical studies suggest we would ideally require a break above the 1.9500 level to confirm a continuation higher.
While we are bullish GBP/NZD, it must be said there are other viewpoints that suggest Sterling is unlikely to regain much of an advantage.
Last week we reported the Kiwi is being tipped to keep its Australian and British rivals under pressure and advance in the months ahead argue currency strategists at Deutsche Bank who see change in the fundamental underpinnings behind the currency.
“NZD has come a long way, posting the strongest performance of all G10 currencies since the new government took control. The market was concerned that new policies could affect growth, but seems to have gravitated to our view that disruption would be minimal,” says Tim Baker, an FX strategist at Deutsche Bank.
The New Zealand Dollar came under severe pressure in late 2017, dropping more than 6% against an extremely weak US Dollar, as markets took fright at New Zealand First’s decision to form a coalition government with the Labour Party. But it has bounced back strongly since mid-December.
“Of course, USD weakness has been a contributor – NZD hasn’t risen much against some currencies. But NZD has done very well against AUD also. Our Blueprint trade to sell AUD/NZD has worked, with the cross having now fallen through our mid-year forecast of 1.07,” says Baker.
And the analyst adds, “an alternative way to express NZD strength is to sell GBP/NZD, which also plays to our team’s bearish GBP view. The countries face some similarities - very tight labour markets, and concerns around a supply shock as population growth fades. Yet the central banks take divergent views".
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Data and Events to Watch for the New Zealand Dollar
It is a big week for trade data in New Zealand.
On Tuesday the Trade Balance (the difference between imports and exports) is expected to show a -2.7bn deficit in January after showing a 640m surplus in the previous month of December when it is released at 21.45 GMT.
Traditionally the value of the New Zealand Dollar is linked to the balance of trade such that a deficit is negative for the Kiwi, since it shows a greater demand for imports over exports and thus greater Kiwi selling than buying, yet the data usually doesn't impact on the currency at the time it is released unless it diverges a lot from expectations.
On Wednesday at 'Terms of Trade' data is released for the fourth quarter at 21.45 GMT, and is forecast to show a rise of 0.7%.
Terms of trade is the difference between the change in the price of imports and exports.
Finally, Roy Morgan Consumer Confidence for February - a key gauge of consumer sentiment, is released at 21.00 GMT on Thursday, March 01. In January it posted a score of 126.9.
Data and Events to Watch for the Pound
From a fundamental perspective, the most important factor for the Pound in the coming week is the outcome of the extended cabinet meeting held at the Prime Minister's residence at Chequers to heal divisions and decide on a consensus approach to Brexit.
The outcome of the meeting will be crystalised in a speech due to be delivered by Prime Minister Theresa May on Friday, the location and exact time of the speech are yet to be made clear.
The British Pound was seen as one of the better performing global currencies towards the end of the previous week with markets cheering the UK government making progress on their Brexit strategy.
The promise of Conservative party unity on the issue of Brexit is a rare commodity, but this could well be on offer following Theresa May's decision to lock her top team in a room in the English country side and let them out only once agreement had been sought.
Members of Cabinet emerged from the meeting with those on either side of the Brexit divide saying talks were constructive and a unified position had been found.
"GBP is top of the pack by a small margin, as reports suggest the cabinet is closer to agreeing a unified line on the UK’s post-Brexit relationship with the EU after the Chequers meeting ended late last night," says Adam Cole, Chief Currency Strategist with RBC Capital Markets.
Brexit remains the key story for Sterling and therefore the details of May's speech, and any European response could, therefore, be key.
The issue of UK interest rates will be in focus with the Bank of England's (BOE) Sir John Cunliffe delivering a speech on Monday at 18.00 GMT, in which he may drop hints as to the BoE's stance on monetary policy.
There is now a heightened expectation that the BoE will raise interest rates by 0.25% in May after statements made in the February meeting statement and more recently in front of the Treasury Select Committee indicated BoE members had adopted a more 'hawkish' stance - 'hawkish' meaning members are in favour of raising interest rates at a quickened pace.
If Cunliffe's speech further reinforces a more aggressively hawkish tightening strategy from the bank and a greater chance of a May hike, the Pound will rise, since higher interest rates are supportive of Sterling, because they attract greater inflows of foreign capital drawn by the promise of higher returns.
It is not expected to, however - Cunliffe dissented from raising rates in November and may well still be on the dovish spectrum.
Clearly, if he has become more hawkish it will be a strong indication of voting intentions and push the Pound higher.
"BoE’s Jon Cunliffe is set to speak on Monday following fellow Deputy Governor Dave Ramsden’s scheduled remarks tomorrow.
Given that both dissented against the November rate hike, it will be interesting to see whether they maintain their reservations in the face of the hawkish testimony delivered to the Treasury Select Committee by the Governor Mark Carney and other MPC members," said Investec analysts George Brown and Victoria Clarke.
House price data from Nationwide is out on Thursday at 7.00 GMT and is expected to rise 2.6% in February compared to a year ago and 0.2% from the previous month. Housing leads the economy they say so it is important, but there are not expected to be any surprises in the Nationwide data, so little probable impact on Sterling.
The major economic release of the week is Thursday's release of Manufacturing PMI for February at 9.30 GMT, which is forecast to show a slowdown to 55.0 from 55.3.
PMIs are surveys of key personnel (Purchasing Managers) in a sector and provide a good leading indicator of growth and activity. A result of over 50 indicates expansion and below 50 - contraction.
Construction PMI is out on Friday at the same time and is forecast to come out at 50.7 in February from 50.2 previously.
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