Pound Sees Solid Floor at 1.77 Against New Zealand Dollar Suggest Forecasts
- Written by: Gary Howes
Recent price action in the Pound to New Zealand Dollar exchange rate (GBP/NZD) suggests to us that the pair may have bottomed.
Sterling could be about to record a third consecutive day of gains against the NZ Dollar on the basis of the strong rally being witnessed in the broader GBP complexon Thursday the 18th.
Sterling has moved notably higher as latest data shows UK retail sales shot to their highest level in years - and this in the month following the EU referendum when analysts had expected a sizeable economic slowdown.
The growth of 1.4% in July easily surpassed expectations for a damp 0.2% reading.
At the time of writing we note the mid-market GBP to NZD rate to be at 1.8037, we saw it towards a best of 1.8020 yesterday.
Bank accounts are seen offering rates of between 1.7532 and 1.7406 for your international payments while independent FX providers are seen quoting in the region of 1.7875 - 1.7748.
The NZD has declined despite top-tier data releases from New Zealand, in the form of dairy prices, employment change and PPI all beating analyst expectations.
There does appear to be some solid technical influences guiding the market at present.
The recovery in Sterling meanwhile which comes on the back of two sets of good data, has allowed the market to technically align against further downside impetus.
A strong base formation in the GBP/NZD exchange rate is the minimum requirement for any kind of recovery to launch from.
The pair appears to have bounced along the 1.77 support line on a number of occasions, and graphically at least, it would appear that sellers fear to tread below this level:
Based on the expected demand for Sterling at 1.77 we are increasingly confident in calling it a near-term support. Indeed, we wrote at the beginning of the week that we were expecting a turn in fortunes for the Pound against the NZD
Before advocating a more sustained turn-around in fortunes for GBP/NZD we would need to see the move away from here extend, followed by a break of interim resistance at 1.90.
Latest Pound / New Zealand Dollar Exchange Rates
  | Live: 2.3114▼ -0.06%12 Month Best:2.3553 |
*Your Bank's Retail Rate
| 2.2328 - 2.242 |
**Independent Specialist | 2.279 - 2.2883 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Underlying New Zealand Data is Supportive
Recent price action in the New Zealand Dollar complex has been poor, in fact the currency was the second-worst performer in the G10 family over the course of the past 24 hours.
The declines come in spite of a solid jobs report for the second quarter, which suggests the NZD is taking its cues from global drivers.
The NZ unemployment rate fell more than expected to 5.1% in the June quarter (versus 5.3% median forecast and a downwardly revised figure of 5.2% in the previous quarter).
In addition, the participation rate rose to 69.7% from 68.8% in the first quarter after Statistics New Zealand modified the way it collects data.
Nevertheless, the data does raise some question marks owing to changes to the Household Labour Force Survey initiated by the official statistics body in response to latest population estimates.
Therefore, meaningful comparisons with preceding periods cannot be made.
Of the very strong Q2 employment growth relative to Q1, Stats NZ is unable to distinguish whether it is genuine employment strength or merely the impact of surveying changes.
"As such, we cannot read into the Q2 results any implications about the strength of the economy or implications for the interest rate outlook. It is best to treat the new HLFS survey as a structural break from the previous one," says Daniel Snowden, economist with ASB.
Therefore, that NZD did not put in a powerful rally following the data release is to be expected.
Impressive Rally in Dairy Prices, but Can it Last?
The recent declines in NZD come despite a sharp appreciation in dairy prices - a key component of the NZ export basket.
Dairy prices rallied an impressive 12.7% overnight with wholemilk powder prices leading the charge, up 18.9%.
Driving the trend has been slowing supply across major Southern Hemisphere exporters and now Europe.
Further gains in the price have been driven by China buying for the preferential free-trade window from November to January; other buyers hopping on board to extend their hedging into 2017; and low New Zealand inventory levels directing more demand toward the GDT platform (as opposed to other sale channels).
Looking ahead, analysis from ANZ Research says the trick for farm-gate returns will be whether or not these gains can be held on to post the preferential free-trade window with China closing around October.
"There are many other indicators that still look challenging for dairying such as low global grain and energy prices and an overhang of skim milk powder," warn ANZ.
Furthermore, it is suggested that the weather at the start of the upcoming summer season will be key.
"Post October much is likely to depend on how the New Zealand season starts. If it stays cool and wet, it will be a slow start. If the sun emerges, it could well be a fast start. So all eyes will be on the weather and pasture covers. But for now it’s looking like it could be a slow start to the season," note ANZ.
