- GBP/NZD eyes break of 1.9418 resistance
- GBP outperforms at start of new week
- NZD to struggle says Barclays
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- GBP/NZD rate at publication: 1.9440
- Bank transfer rates (indicative guide): 1.8760-1.8896
- Money transfer specialist rates (indicative): 1.8828-1.9304
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A strong start to the new week for Pound Sterling means the UK currency is on the cusp of breaking to new 2021 highs against the New Zealand Dollar.
The Pound-to-New Zealand Dollar exchange rate (GBP/NZD) rose half a percent on Monday to trade at 1.9392, just shy off the 2021 high at 1.9418 which was reached on March 05 and February 18.
Failures at this level suggests an element of technical resistance which must be overcome if the currency's rebound is to make further progress:
Above: GBP/NZD could break to new 2021 highs in the near-term
The Pound is currently trending higher against the majority of G10 currencies courtesy of the UK's strong vaccination rollout programme which has meant a third of the population has now had at least one dose of a coronavirus vaccine.
Data from Public Health England shows one dose of either of the two vaccines the UK is presently rolling out can reduce the risk of hospitalisation by over 80% four weeks after the jab.
The vaccine is meanwhile believed to be behind the sharp decline in covid deaths in the UK, with Sunday seeing the number of deaths fall below 100 for the first time since October 19.
The positive trends in the pandemic means the UK is on course for a sustainable reopening, with Monday March 08 seeing school children return to the classroom which in itself is expected to inject a substantial boost of activity into the economy.
A steady easing of lockdown conditions is expected to take place over coming months, culminating in a full unlocking of the economy on June 21.
The unlocking process, combined with vaccine-inspired confidence that the last of the lockdowns has passed, is expected by economists to result in a strong growth impulse in UK economic activity.
"The UK economy is well-positioned for the coming recovery," says Zach Pandl, economist at Goldman Sachs. "Solid household and business balance sheets should soon translate into robust growth, as the UK’s strategy of prioritising getting more people vaccinated with a single dose appears to be paying dividends. We are therefore keeping open the short EUR/GBP component of our long GBP/CHF cross trade."
Foreign exchange analysts at Barclays meanwhile tell clients at the start of the new week they maintain a view that the New Zealand Dollar is likely to weaken further, especially if risk sentiment deteriorates and rate spreads start to weigh against the NZD.
Market pricing for a rate rise at the Reserve Bank of New Zealand (RBNZ) and the relative strong rally in the yield paid on New Zealand government bonds has been supportive of the New Zealand Dollar over recent months.
GBP/NZD Forecasts 2021
Period: Q2 2021 Onwards
FX for Businesses Guide
The market has gone from pricing an interest rate cut at the RBNZ in 2021 to pricing in an interest rate rise in 2022, a dynamic that correlated with a strong rise in the value of the New Zealand Dollar into the start of the year.
However, Barclays sees this support as now having run its course. They say the RBNZ is to step up its quantitative easing programme and increase government bond purchases to NZD630mn (vs NZD570mn last week).
This should lower the yield paid on Kiwi bonds, thereby diminishing support for the NZ Dollar.
"We also expect the RBNZ to continue to lean against any expectation of an early exit from its accommodative policy stance," says Ashish Agrawal, an analyst with Barclays.
Last week, in a speech, RBNZ Governor Orr emphasised that the remit to include house price in making monetary policy decisions would not alter its commitment to provide stimulus for a prolonged period and its goals to achieve low and stable CPI and maximum sustainable employment.
Analysts say an aggressive stance by the RBNZ to support the economy will likely provide a reason to expect NZ Dollar underperformance, particularly if global stock markets continue to extend recent losses.
The rise in yields on ten-year U.S. government is of particular interest to investors as the moves have correlated with a pullback in stock markets, to which the New Zealand Dollar is generally positively correlated.
Therefore the currency appears to have failed to benefit from any yield advantage New Zealand has enjoyed of late.
Investors are fretting that rising yields pose a headwind to the recovery and stocks have reversed the strong gains seen heading into early 2021 as a result, creating conditions conducive to New Zealand Dollar underperformance.
"Antipodeans come under pressure amid elevated volatility," says Marek Raczko, an analyst at Barclays.