Pound-New Zealand Dollar Rate Due a Breather

Image © Adobe Images

The pound rises against the New Zealand dollar on Monday and looks set to trade at the 2.28 pivot in the coming days.

The pound to New Zealand dollar exchange rate (GBP/NZD) has now recorded six consecutive weekly declines as a selloff that began in early April extends further.

Our hunch is that this week will see sterling snap the run of weekly losses as it pares recent losses and enters a short-term consolidation, helped by a drawdown in global equity markets.

Friday's strong 0.66% advance in GBP/NZD flew in the face of the broader GBP weakness we saw, which was linked to news that the leftist Andy Burnham would stand in the Makerfield by-election, which, if won, opens the door to Number 10.

That the NZD was unable to capitalise on GBP weakness on the day tells us a lot about the NZ dollar: the pair's Friday losses correlate with a downday for the U.S. S&P 500 stock index, a proxy for global investor sentiment.

It reminds us that NZD will struggle if stocks come under pressure in the near-term, a distinct possibility as the Strait of Hormuz remains closed, U.S. inflation is running hot and investors are betting the Federal Reserve will have to raise interest rates in the coming months.

"President Donald Trump’s comments that he does not think the Strait of Hormuz needs to be re-opened has dented sentiment," says a currency market note from Crédit Agricole. "Investors become concerned that Trump is becoming content to let the closure of the Strait of Hormuz endure."

The net result is a lift in GBP/NZD to 2.2814 on Monday, which puts it back above the 23.6% Fibonacci retracement of the January-February selloff.

These Fib levels continue to be useful, even if measuring against that Jan-Feb decline looks a bit anachronistic at this point in time.

The Fib levels have offered useful tram lines for a technical approach to GBP/NZD and, if this continues, the coming week should see the 2.28 zone attract.