Pound-New Zealand Dollar Forecast: Technicals Suggest a Rebound from Oversold Could be Possible

- GBP/NZD stuck in a downtrend
- But GBP/NZD oversold according to Trading Central
- ANZ says NZD gains to be sluggish

Image © Rafael Ben-Ari, Adobe Images

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The Pound-to-New Zealand Dollar exchange rate remains caught in a multi-week downtrend and is quoted at 1.9078 at the start of the new week, a decline that comes amidst a rally in global equity and commodity markets.

Stocks and commodities are rising as traders discount the ongoing rise in the global covid-19 count, believing that future lockdowns will likely be localised and the era of nationwide lockdowns is now a feature of the past.

"The Aussie and Kiwi are strong outperformers," says Richard Perry, an analyst at Hantec Markets. "Chinese media have been pushing a “bull market” narrative over the weekend, and it is interesting to see the Shanghai Composite over +5% higher today. This bullish theme has leaked into forex major which are taking a risk positive skew which is benefitting higher beta majors at the expense of the safer havens."

The rally allows the likes of the Australian and New Zealand Dollar to make headway and should the multi-week recovery continue, further gains are likely.

This state of play is encapsulated in the GBP/NZD exchange rate's daily chart where we are able to observe a clearly-defined downtrend:

We see little evidence of the trend being broken and therefore suggest further losses in Sterling's value are likely.

However, an alternative viewpoint is presented by analysts at Trading Central - a technical analysis information and strategy provider - who see the prospect of a rebound.

Analysts say they prefer to back a scenario whereby a rebound towards 1.9854 shapes up, noting that the exchange rate is oversold.

In particular, it is noted that the Relative Strength Index (RSI) is below 30, "it could either mean that the pair is in a lasting downtrend or just oversold and therefore bound to retrace (look for bullish divergence in this case)".

The technical case for a rebound therefore largely rests with a view that the sell-off is overdone and some consolidation is required.

We don't see this as being a high-conviction reason to call for GBP/NZD strength and would therefore imagine that any Sterling gains will likely be short-lived in nature, particularly if markets extend the global recovery theme.

However, strategists at ANZ Bank say the New Zealand Dollar's advance against the Pound will likely remain "a struggle than a rally".

Only a "really clean break of" 1.9047 would be bullish for the New Zealand Dollar according to David Croy, Strategist at ANZ Bank.

"The Kiwi gathered more strength through Friday on the back of global optimism following better-than-expected US jobs data. Absent any strong differentiating local factors, Kiwi will continue to dance to a global beat," says Croy.