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Pound-to-New Zealand Dollar Rate Forecast for the Week Ahead

- One Pound buys 1.9463 NZ Dollars at the time of writing

- Trade data allows NZD to outperform other currencies at start of new week

- GBP/NZD has just broken out higher, next target could be 1.9800

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© moonrise, Adobe Stock

The Pound-to-New Zealand Dollar exchange rate starts the new week in the red, having traded down to 1.9463 after being seen as high as 1.9641 last week. It appears an improved tone to market sentiment is helping the New Zealand Dollar as well as some beneficial domestic data.

NZD is infact one the best-performing major currencies after New Zealand’s February trade balance beat estimates (NZD +217mn vs expectations of -100mn).

Despite the decent start to the week for the antipodean currency, our technical studies suggest Sterling is likely to hold the overall advantage with the GBP/NZD exchange rate could be in the process of breaking out of what was thought to be a triangle formation last week.

In the end, it did successfully break out of the triangle and rallied up to a peak of 1.9642 before stalling and consolidating - it is currently trading back down at 1.9527.

The upside target for the triangle breakout is 1.9800, so the exchange rate has not reached that yet, but it is expected to.

The target is calculated using the golden ratio (0.618) of the hight of the triangle at its tallest point and extrapolating it up from the breakout point.

For confirmation of a continuation up to the target, however, we would ideally like to see a break above the 1.9643, March 21 highs first.

The MACD momentum indicator in the bottom panel is rising steeply above the zero-line and backing-up the bullish forecast.

Our technical studies come days after we reported that BNZ - one of New Zealand's most prominent lenders - told corporate clients that they expect the Pound to retain an advantage against the NZ Dollar.

"GBP is expected to be in the driving seat, recovering from its depressed level when viewed in a medium-long term context," says BNZ analyst Stephen Toplis.

The main headwind for NZD is a gear shift down in global growth and risk appetite due to the current trend in central banks' raising interest rates.

Higher interest rates, or 'monetary tightening' as it is known, curbs lending by making it more expensive to borrow, eventually reducing investment and growth.

Slowing growth will limit demand for commodities leading to a fall in commodity prices.

The New Zealand economy is heavily reliant on commodity exports, especially of soft commodities so its economy will be particularly hit by a slowdown.

"We still think this is a slow-burning headwind for the NZD through 2018," says Toplis.

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News and Data to Watch for the New Zealand Dollar

As mentioned, NZD was the best-performing currency after New Zealand’s February trade balance beat estimates (NZD +217mn vs expectations of -100mn).

The trade balance was forecast to narrow to -100m from -566m previously.

Ahead, the other major release is ANZ business confidence out at 1.00 on Wednesday, March 28 while later on that day building permits are out for February at 22.45.

 

Data and Events to Watch for the Pound in the Week Ahead

Overall it is a relatively quiet week for the Pound on the calendar and the most likely source of volatility will probably be the ongoing Brexit debate.

The Pound strengthened last week after a transitional agreement was agreed by the EU in Brussels, which will now see the UK extend its stay by 21 months after the March 2019 deadline, on special terms, whilst a comprehensive trade deal is hammered out.

Brexit headlines are of course impossible to predict as they are generated by politicians and we will be monitoring the newswires for any potential points of interest.

From a purely hard data perspective, the main release is the third estimate of Q4 GDP on Thursday at 8.30 GMT, although the consensus sees little chance of a change from the second estimate of 0.4% growth quarter-on-quarter.

"The more significant interest for next week’s publication will come from the national accounts detail released at this time," says Investec of the GDP release. This will include revisions to data on household income and personal finances in general, which affect overall consumer spending, the biggest driver of growth for the economy.

Should growth be downgraded unexpectedly we would certainly expect a soggy end to the shortened week for the Pound.

Current account data for Q4 is also out on Thursday, March 29, at 09.30, and is forecast to show the deficit widening to -24.0bn from -22.8bn previously.

Traditionally the current account was always seen as a major influence on currency levels but now there appears to be little empirical evidence of a link, so we do not see much volatility arising from this release.

The CBI Distributive Trade Survey for March is out on Wednesday, Mach 28 at 10.00 GMT and will provide the latest data on the retail sector.

"Launched in 1983, this widely followed survey covers questions on sales, orders, stocks, general business situation, employment trends and internet sales," says the CBI website.

Other March data includes Gfk Consumer Confidence, which forecasts to remain at a -10 reading the same as February.

Investec, however, sees a chance of a lift to -8 in March because of rising wages, less job uncertainty, easing inflation, the agreement of a Brexit transition deal and "the uncharacteristically “Tiggerish” Chancellor at his inaugural Spring Statement.

Other data in the week ahead includes mortgage approvals on Monday at 8.30, Nationwide house prices on Thursday at 6.00 (watch for a negative result as this would make two negative months in a row and be bearish for Sterling); business investment on Thursday at 8.30, consumer credit at the same time and mortgage lending also at the same time.

Get up to 5% more foreign exchange by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here.