Pound-to-New Zealand Dollar Rate Forecast for the Week Ahead

© thanasak, Adobe Stock

The GBP/NZD exchange rate continues to trade in a sideways range as the Pound takes timeout from its longer-term recovery.

GBP/NZD has been in a long-term uptrend since the start of 2017 and despite correcting back since the November highs the overall bull trend remains intact.

Nevertheless, since the start of 2018, the current short-term trend has been sideways. During the last two weeks, the pair's range has narrowed even further, encompassing a corridor between 1.89 lows and 1.92 highs.

Activity since the start of the year resembles a triangular pattern although it's too unclear to be certain it is a bona fide pattern.

Regardless, it shares many of the characteristics of a triangle and we expect it to breakout in a similar volatile fashion.

There has been repeated pressure on the 1.89 range floor and it looks vulnerable to a break lower. A move below the 1.8905 Feb 22 lows would probably lead to a spike lower to a target at the 200-day MA at 1.8600.

Alternatively, a break above the 1.9455 Feb 8 highs would confirm a breakout higher and probably lead to a steep run-up to an upside target at 1.9835.

The location of the 50-month moving average (MA) at the 1.9835 December highs (see below) is a further deterrent to expecting more gains as it is likely to present a major obstacle to further upside.

Major moving averages tend to act as obstacles to the dominant trend and the exchange rate often stalls, pulls-back or reverse trend when it touches them. This characteristic means MA's also attract short-term technical traders wanting to capitalize on the pull-back which actually further enhances the effect.

Get up to 5% more foreign exchange by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here.

Data and Events to Watch for the New Zealand Dollar

One of the main data releases for the New Zealand Dollar in the week ahead is GDP Growth data for the fourth quarter out on Wednesday, March 14 at 21.45 GMT. It is forecast to show a 0.8% rise in the fourth quarter compared to 0.6% in the previous quarter.

Compared to a year ago, growth is expected to show a 2.3% rise compared to the 2.7% previously.

Higher-than-expected growth would be expected to support the Kiwi. "We also expect New Zealand GDP to expand by a robust 0.8%, further supporting our view NZD can trade near current levels," says Richard Grace, an analyst with CBA in Sydney.

The New Zealand current account balance data is out on Wednesday, which is a measure of a country's balance of payments, is forecast to show a deficit of -2.45bn in Q4, from -4.7bn in Q3.

According to classical economic theory, a current account surplus tends to lead to a stronger currency and vice versa for the deficit.

"New Zealand’s Achilles’ heel has long been New Zealand’s current account deficit. But New Zealand’s current account deficit has been less than 3% of GDP for some time, and we expect this trend to continue. The smaller current account deficit is supportive for NZD’s higher valuation," says Grace.

Thursday, March 15 sees the release of NZ Business PMI in February, January saw a result of 55.6.

PMI stands for purchasing manager index and is a survey-based indicator which tends to be accurate at measuring activity in a specific area of the economy, and is considered to have leading-indicator qualities.

Data and Events to Watch for the Pound

The main event for the Pound in the week ahead is probably the Chancellors’ Spring Statement, this is a new initiative brought in by Philip Hammond to provide an update on the economic and fiscal outlook.

No changes to the budget are expected and the statement is only scheduled to last 15-20mins, according to media reports, which is only a rump compared to the Autumn statement.

Budget's do not often move currencies so the Pound may not react, however, alongside the statement are revised forecasts from the Office of Budgetary Responsibility (OBR) which if substantially altered may impact on growth prospects and therefore Sterling.

The OBR has, on balance, been overly pessimistic in the past, generally undershooting with its forecasts and leading some commentators to expect it to revise up its forecasts on Tuesday.

"It is always difficult to predict other institutions’ forecasts. However in terms of the Spring Statement, we would expect the GDP growth projections to be a little more upbeat," says Ryan Djajasaputra, an analyst at Investec.

The OBR's most recent forecasts are contained in the table below.

For the sake of context, Investec's own house forecasts is for GDP growth of 1.7% in each year.

The other main event is the Bank of England's (BOE) Financial Policy Committee (FPC) meeting on Monday (statement published Friday 16) to discuss possible changes to capital buffers, introduced after the financial crisis under the Basel 3 regulatory framework.

The focus will be on whether the BOE reviews the size of the "Counter Cyclical Capital Buffer" (CCYB), a piece of regulation which guards against excessive bank-lending during upturns and excessive parsimony during downturns - thus the "counter-cyclical" sobriquet.

In November it was raised to 1%, with the FPC also indicating that it could be increased further in H1 2018 - so there is a possibility of a change at the meeting.

Again, this is unlikely to hit FX markets in any major way, and even if it does the impact may be difficult to gauge beforehand.

The CCYB impacts on the supply of credit, and therefore on inflation and growth, which in turn influence currency value, and it will probably form a part of the bigger picture that currency analysts consider in relation to their forecasts.

Generally increases in the supply of credit are seen as inflationary and likely to increase interest rates, which in turn leads to capital accumulation and a stronger currency.

Get up to 5% more foreign exchange by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here.