Pound Poised for Further Downside Against New Zealand Dollar
Risks are skewed to further downside in the GBP to NZD pair say analysts at BNZ bank, however, our technical analysis of the charts does not confirm this bearish view in the very short-term.
The Australian Dollar and New Zealand dollars ended the day broadly higher suggesting a recent bout of weakness may be coming to an end.
GBP/NZD is seen trading at 1.8046 at the time of writing while GBP/AUD is at 1.7296.
"These two currencies have been very strong despite mixed economic data. The only explanation is their generous yield and the lack of excessively dovish comments from the RBA and RBNZ. AUD shrugged off disappointing housing numbers," notes Kathy Lien at BK Asset Management.
The GBP/NZD exchange rate, while lower at the start of the week, has been gently ascending since mid August in line with the broader GBP pick up.
The pair has risen for two weeks in a row now, having bounced off the floor just at 1.7744 on the week starting 15th August to close the week ending the 26th August at 1.8146.
The rally comes on suggestions that the outlook facing the UK economy is not as dire as first thought following the vote to leave the EU.
“GBP has fallen significantly since the Brexit referendum and looks very cheap amongst global currencies, but we’re not convinced that it has fallen by enough. A ramp-up in policy easing by the Bank of England and the prospect of a delayed exit from the EU are GBP-negative,” say BNZ in a note to clients.
The note goes on to say that the familiar enemy of the UK’s large current account deficit is a drag on sterling:
“The longer the delay, the greater the economic uncertainty and lack of investment in the UK. In the meantime, a large current account deficit needs to be funded. It points to further downside pressure in GBP/NZD over time. Volatility in the cross is likely to be greater than average.”
Latest Pound / New Zealand Dollar Exchange Rates
  | Live: 2.3103▼ -0.11%12 Month Best:2.3553 |
*Your Bank's Retail Rate
| 2.2317 - 2.241 |
**Independent Specialist | 2.2779 - 2.2872 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
The fundamental picture certainly remains more favourable for the New Zealand dollar against the Pound as New Zealand doesn't have the big question mark of Brexit hanging over it while the purr of economic growth provides a soothing background music for decision makers at the Reserve Bank of New Zealand (RBNZ).
Indeed, the outlook for the New Zealand dollar further improved after the governor of the RBNZ said he was not in a hurry to cut interest rates, defying market expectations that more cuts were on the way.
A recent surge in average dairy prices, which includes whole milk powder - the country’s single largest export, further supported the currency.
Indeed the country’s new wave of agricultural exports have been doing particularly well, which include a 43% rise in kiwi fruit in the year to June 2015, and over 10% rises in exports of wine, apples and seafood as well.
“Overall, export values are higher than a year ago. We see further growth over the coming two years, on better pricing and growing volumes notwithstanding some potential weakness near term which next week’s trade data may confirm. More generally, recent indicators suggest the economy has strong momentum and supportive of our circa 3% growth forecast for this calendar year," say BNZ in their note on the pair.
Technically Speaking... Outlook Favours the GBP
A technical analysis of the pair is more circumspect about the timing of more weakness for the pair, as it shows a mini-up-trend on the four - hour chart which is still intact.
This up-trend, though not particularly strong, was built on the back of easing Brexit fears after a recent string of data releases showed a less negative impact on the economy from Brexit then economists had expected.
A surprisingly positive reading for Business Investment in the second was the most recent data release to defy expectations, after showing a 0.5% rise in the second quarter compared to the -0.8% analysts had forecast.
This was higher than the -0.6% result for the first quarter when there was very little Brexit concern.
Even though the data was for a period mostly prior to the actual referendum, uncertainty would still have been a factor which economists would have expected to halt the stream of investment, however, this did not seem to be the case.
Until the current uptrend cracks, further gains are expected.
The current sideways consolidation, which looks a little like a flag on the four-hour chart, is forecast to break higher eventually, with a break above 1.8115 leading to a move up to the next target at 1.8200:
