- GBP/NZD supported at 1.9400, stymied at 1.9608 short-term
- Amid choppy, volatile & indecisive trading for global markets
- NZD/USD price action & USD trend key for GBP/NZD outlook
- Year-end seasonality & December Fed decision to drive USD
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The Pound to New Zealand Dollar exchange rate rallied strongly throughout the November month but may be facing a period in purgatory during the weeks ahead, with indecisive international markets possibly confining Sterling to trade within a 1.94 to 1.9808 range.
Pound Sterling was itself a long way from the market’s top performer during the month to the opening of December but it did manage to advance more than two percent against the New Zealand Dollar, which has recently underperformed alongside other commodity and risk sensitive currencies.
That was in large part because of an almost unrelenting advance by a U.S. Dollar that has been elevated by mounting expectations of a further hawkish shift in Federal Reserve (Fed) monetary policy, although more recently other factors have also been at play too including a deteriorating coronavirus situation in Europe.
All of this has culminated in the main Kiwi exchange rate NZD/USD falling to its lowest level for 2021, which has helped to lift the closely connected Pound-to-New Zealand Dollar rate to its highest since the middle of October.
“The Kiwi continues to fluctuate around 0.68, and seems to be well bid on any moves into the high-0.67s. But seems to be equally well-offered on any meaningful rallies, giving the impression that while it may have found a base, it’s not in a hurry to go anywhere,” says David Croy, a strategist at ANZ.
Above: Pound-to-New Zealand Dollar rate shown at daily intervals with Fibonacci retracements of September’s corrective decline indicating likely areas of technical resistance to a recovery. Shows Sterling facing resistance from 61.8% Fibonacci retracement.
- GBP/NZD reference rates at publication:
- High street bank rates (indicative band): 1.8818-1.8955
- Payment specialist rates (indicative band): 1.9325-1.9400
- Find out about specialist rates, here
- Or, set up an exchange rate alert, here
- Book your ideal rate, here
“NZD/GBP is range-trading too and has possibly found a base at 0.51 [GBP/NZD resistance at 1.9607]. A possible BoE hike this month (17th) could see that challenged,” Croy and colleagues said in Thursday a market commentary.
New Zealand’s Dollar got no help from a second consecutive Reserve Bank of New Zealand decision to raise its cash rate last month, a policy action that was accompanied by steep upgrades to RBNZ assumptions of exactly how high borrowing costs could need to rise over the coming years.
This and global economic risks stemming from a newly discovered strain of the coronavirus have seen many analysts turn bearish on the Kiwi, which has been supportive of GBP/NZD, although the rub for Sterling is that its path higher has been barred by technical resistance on the charts since late last month.
“The downside remains vulnerable, targeting 0.6775 next. The main driver continues to be the rising US dollar, with Powell’s hawkish comments recently helping the move. NZD/USD should continue to weaken as a result, with potential to reach 0.6600 during the months ahead,” says Imre Speizer, head of NZ strategy at Westpac.
The Pound-to-New Zealand Dollar exchange rate would be in with a shot at rising past resistance around 1.9608 that has so far stalled its advance on the charts if Westpac’s Speizer and others prove to be right about the Kiwi being on the cusp of breaking down to new lows against the Dollar.
But the risk is that this week’s choppy and indecisive U.S. Dollar leads NZD/USD to hold above a major technical support nearby to the 0.68 level, which would push the closely-connected GBP/NZD rate lower toward the 1.94 support that broke its fall once already in late November.
Similar would also be true in the event of any price action that sees greenback beating a retreat from recent highs, irrespective of whether such a retreat would result from typically adverse seasonal influences or something more fundamental.
“We are now watching for a weekly closing break below the important medium -term cluster of supports at the August 2021 low and the “neckline” to the major base completed in 2020 at .6811/6792, which would mark a very important breakdown in our view to definitively confirm further medium-term weakness, with the next support at .6703/6697,” says David Sneddon, head of technical analysis at Credit Suisse.
Above: NZD/USD shown at daily intervals with major support level marked out.