Image © Adobe Images
The British pound looks set to press higher against the New Zealand dollar in the coming week, and any further rise in market volatility would add to the Kiwi's losses.
The Pound to New Zealand Dollar exchange rate is consolidating its September advance beneath the July peak, and with the uptrend intact we look for a fresh push towards those highs this week as the Kiwi struggles against a firm U.S. dollar.
Certainly, the rally has stalled for a fortnight beneath the July high, and markets expect the Reserve Bank of New Zealand to raise interest rates on 28 October, which limits the scope for a Kiwi selloff and should keep any advance measured.
The rising 21-day moving average - the blue line in the below chart - is closing the gap with price as the market consolidates, and a pause of that kind tends to precede the next leg of an uptrend:
GBP/NZD daily chart. Image © Pound Sterling Live, chart created with TradingView.
GBP/NZD begins the week at 2.3348, having spent the past fortnight between roughly 2.3250 and 2.3500, beneath graphical horizontal resistance at 2.3544 set by the July peak.
The 21-day has risen sharply since late August and now sits about half a percent beneath the market. The stretch that built up during the September rally has largely been worked off through sideways trade, without the pound having to give ground.
The 100-day - the red line - has turned higher since the end of August, and the 21-day crossed above it early in the month. Both averages now point up and sit beneath the market, a stack that describes a young uptrend with room to run.
A daily close above 2.3544 would mark a breakout from the consolidation and extend the uptrend.
We expect GBP/NZD to hold above its rising 21-day and push back towards 2.3544 in the days ahead, and only a daily close beneath the 21-day would suggest the consolidation is turning into a deeper pullback. That keeps our Pound to New Zealand Dollar forecast pointed higher.
Last week's call for a pullback towards 2.30-2.31 was wrong: the pair held above 2.32 while its rising averages climbed towards it, which argues the uptrend is in better health than we allowed.
Daniella Arcadipane, Senior Currency Specialist at Indigo
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Talk to a specialistThe Kiwi Is Exposed to a Strong Dollar and Rising Volatility
Why does a stronger dollar lift GBP/NZD? The Kiwi tends to fall further than the pound when the U.S. dollar rallies, so the cross rises even on days when sterling is itself weak against the U.S. currency.
The dollar is near its strongest level in a month and U.S. data this week, headlined by Friday's payrolls report, is expected to keep the Federal Reserve on a hawkish footing after its 16 September hike.
High-beta currencies such as the Kiwi also suffer when volatility rises and investors cut risk. Equities and government bonds both slid at the start of the week once Washington turned down Iran's plan for the strait, and "with volatility on the rise there are increased risks of an FX carry liquidation," say Derek Halpenny and Abdul-Ahad Lockhart in MUFG's G10 FX Weekly of 25 September.
RBNZ Hike Bets Offer the Kiwi a Floor
Money markets were implying around a 75% chance of a hike to 3.00% at the 28 October meeting after RBNZ Governor Anna Breman warned in a speech in Dunedin last week that higher oil prices would push near-term inflation above the bank's September forecasts.
Pump prices in New Zealand are up around 50 cents a litre in the past month, and "we expect the RBNZ to respond," says Kim Mundy, Acting Chief Economist at ASB, in the bank's Economic Weekly of 28 September.
The decision falls on the same day as the UK Budget, which makes 28 October a date that matters for both sides of GBP/NZD.
New Zealand's building permits and its business and consumer confidence surveys make up a second-tier calendar this week; stronger readings would support the Kiwi and weaker ones would weigh on it.
With an October hike largely in the price, the Kiwi has limited further support to draw from the RBNZ while the dollar and volatility work against it. On balance, that is consistent with our Pound to New Zealand Dollar forecast of a renewed push towards the July peak.
Daniella Arcadipane, Senior Currency Specialist at Indigo
Moving a life-changing sum abroad? You won’t be doing it alone.
One specialist explains every step in plain English and stays with it until the money lands. FCA authorised, FRN 594433.
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