Pound-to-New Zealand Dollar Rate 5 Day Forecast: Breaking out of a Range

- Lack of upside traction means short-term trend technically remains bearish

- A break clearly below the 50-week MA is required to confirm a continuation

- UK inflation and wage data could well provide volatility

© Naru Edom, Adobe Stock

The GBP/NZD exchange rate's monthly chart is showing that the overall long-term secular trend has been down ever since the turn of the century.

More recently in 2018, the pair recovered back up to the level of the 50-month moving average (MA) at 1.98 but then ran into resistance from the MA which then seems to have capped its gains ever since late 2017.

This not unusual - large moving averages often present an obstacle to price action.

They are popular indicators and, therefore, attract a lot of attention and are often the location of increased buying and selling. Their reputation as obstacles often leads short-term traders to use them to trade counter the dominant trend.

Looking now at the weekly time period chart we can see that price action is broadly enclosed by two further MAs - the 200-week MA, which is capping gains like the 50-month, and the 50-week MA which is underpinning price action below the current price consolidation at 1.8807. These are likely to present tough boundaries to price action.

The daily chart below shows the current short-term trend within the sideways consolidation remains down, despite the recovery over the last week, which just has not been strong enough to change the trend.

The problem is that the 50-week MA situated not far below the 1.8890 lows at 1.8807 is likely to severely limit a continuation lower.

We are overall neutral, except in the event of a break below the 50-week MA, confirmed by a move below 1.8700, which we would expect to lead to move down to an initial target at 1.8625, at the January lows.

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The Pound this Week: Big Data Releases

It's a busy week on the data front for the Pound.

Monday, June 10

Manufacturing production numbers are out, and markets are looking for the month-on-month reading for April to read at 0.3%, taking the year-on-year number up to 2.9%.

Any disappointment might hurt Sterling as markets are looking for economic data to start reflecting a pick-up in activity into the second half of the year, which could ultimately lead to an interest rate rise at the Bank of England in August.

Should expectations for an interest rate rise is August increase over coming weeks, on the back of improving data, the Pound should ultimately find more support.

Tuesday, June 11

This is the big one for Sterling.

The ONS will release employment and wage data at 09:30 which will in turn be closely watched by policy-setters at the Bank of England.

Average earnings, bonus included, is forecast to read at 2.6%, a beat on this should help Sterling find a bid as higher inflation = higher inflation on the horizon = higher interest rates at the Bank of England.

For Sterling, a beat on this 2.6% figure must be delivered if it is to go higher.

"However, recent outturns of pay growth – as captured by the 3M/3M growth rate – suggest the underlying trend in pay growth has fallen back recently," warns a preview note of the event released by economists at UniCredit Bank.

Wednesday. June 12

Another big day for Sterling as actual inflation numbers are released and the same dynamics as described above apply.

Headline inflation is forecast to read at 2.5% on an annualised basis, up from 2.4% in the previous month.

Clearly inflation is heading in the wrong direction for the Bank of England which is targeting a 2.0% inflation rate, and should the number beat 2.5% expectations for an interest rate rise will surely be ushered forward.

Be careful to watch the core CPI number - this is arguably more important than the headline number as it accounts for organically generated price rises that reflect economic growth dynamics.

Core is forecast to read at 2.1% a hit or miss against this number will likely move Sterling.

Thursday, June 13

Retail sales numbers are out, and with markets focussing on data once more, Sterling could react to any surprises.

Expectations are for UK consumers to be finding their feet again following a tough start to the year.

Retail sales are forecast to read at 0.6%.

New Zealand Dollar: Something Left in the Tank for Now

Data out this week is second-tier in nature and we would not expect headlines coming out of the country to significantly impact the value fo the New Zealand Dollar.

Keep an eye on Electronic Card Retail Sales numbers for May, out on Monday, June 11 at 23:45 B.S.T. We will be looking for an improvement on the previous month's -2.2% reading.

Overall global sentiment will likely be key for the New Zealand Dollar.

"With the rates dynamics shifting less negative for the NZD and with more balanced positioning, we feel the kiwi has found a reasonable near-term base," says a note from foreign exchange strategists at ANZ.

ANZ say they see the NZD holding the "potential to push modestly higher in the near term especially if global risk appetite remains supportive."

Medium term, though, ANZ "still believe that in an environment where the global liquidity cycle is tightening, the NZD will face challenges."

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