The REINZ business survey will be of interest to NZD watchers this week. Image: Adobe Images
The GBP/NZD week ahead forecast looks for further near-term weakness.
Last week's RBNZ decision sure landed hard on the pound-to-New Zealand dollar exchange rate, with more follow-through weakness likely in the short-term.
The central bank raised interest rates 25 basis points to 2.50% and indicated it can raise the OCR further in the coming months, guidance that caught the market unprepared.
Indeed, there was a sense that the RBNZ might want to be more cautious in steering the market to another hike, given the economy continues to operate below potential.
Yet here we are: the central bank is offering some 'hawkish' tailwinds for its currency, and the GBP/NZD is in retreat having tested multi-month highs in the run-up to the decision.
The price action serves as a reminder that the 2.3491-2.3554 area remains a formidable barrier.
Momentum has cooled noticeably with the RSI falling from above 65 to below 50, reflecting a significant loss of bullish momentum over only a few sessions.
That deterioration suggests upside momentum has been interrupted and the market may require a period of consolidation before attempting another assault on the highs.
Nevertheless, the broader trend has not materially deteriorated: GBP/NZD continues to trade above the rising 200-day moving average, which has acted as dynamic support throughout the latest advance.
Unless that average is decisively broken, the recent decline looks more like a correction within an improving medium-term structure than the start of a new downtrend.
For the week ahead, attention centres on 2.3027, where the 200-day moving average should provide an important test of buyer conviction.
A successful defence of this area would strengthen the case for another attempt on 2.3491-2.3554 later in July or August.
Conversely, a sustained break below the 200-day moving average would suggest the failed breakout has evolved into a deeper corrective phase, exposing 2.2900 initially and potentially 2.2400 thereafter.
Are New Zealand's Businesses More Confident?
Image courtesy of Westpac.
That's the question this week's release of the quarterly NZIER business confidence survey will be seeking to answer.
The survey is closely followed by economists looking for signs that the economy continues to steadily climb out of its rut, and those at the RBNZ will be watching closely.
The Q1 survey showed a marked fall in business confidence following the US-Iran conflict. However, the long survey period – from early March to early April – meant that the average results hid a lot, with later responses much weaker than early ones as the severity of the situation became clearer.
"Similarly, the survey period for Q2 will have straddled the peace agreement that was reached in mid-June, which means that a breakdown of the later responses would likely be more informative than looking at the averages," says a note from Westpac.
Westpac says of most interest to the RBNZ will be whether the survey points to any persistence in firms’ pricing intentions even as oil prices receded back towards pre-conflict levels
An improvement in the index from Q1's reading of +1 would underpin the recent hawkish market repricing, and that can support the NZ dollar.
