- GBP/NZD in short-term downtrend but ripe for a rotation higher
- The main release for New Zealand is a general business activity survey (PMI)
- For the Pound industrial and manufacturing data leads the way
© kasto, Adobe Stock
One Pound buys 1.9333 New Zealand Dollars at the time of writing, well below the +1.96s seen in late March but an improvement on the 1.9181 witnessed last week.
In fact, GBP/NZD continues its steady decline as the new trading week begins, going against the grain of the UK currency's recent generally bid tone.
Weaker-than-expected business activity data in the UK may have contributed to the squeeze lower, despite trader's putting the declines down to the bad weather in March.
The Kiwi may have been supported by slightly stronger Whole Milk Powder prices at auction last week, which showed a 1.6% rise to $3,278 USD per tonne, even though Dairy products as a whole weakened in price - Wholer Milk Powder is the country's largest export.
Reviewing the charts and the technical situation, we note that the daily chart of GBP/NZD is still showing a breakout from a rather beautiful triangle pattern (see below).
After the initial break higher the pair rallied up to a peak of 1.9642 before stalling and then correcting back to the current 1.9337 level.
It is now trading on the 50-day moving average (MA) which is likely to act as a support preventing further declines.
The eventual upside target for the triangle, calculated using the classical technical method of taking the height of the pattern at its widest point and extrapolating it higher by the golden ratio (0.618), is 1.9800. Given the exchange rate has not reached the target yet, but is likely to eventually, we expect more upside to evolve, quite possibly in the week ahead.
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.
Above 1.98 the going is likely to get tough again as the pair meets the 200-week moving average at 1.9803.
Uptrending prices often stall, pull-back or even sometimes reverse at the level of large moving averages like the 200-week, because it is used by large speculators, fund managers and retail traders alike as a decision-making tool, and is therefore subject to greater-than-average levels of volatility.
Data and Events to Watch for the New Zealand Dollar
There are no major 'movers and shakers' on the data front for the Kiwi in the week ahead and we would expect overall global market sentiment to dictate movement in the currency.
The week begins with NZIER Business Confidence at 23.00 GMT on Monday, (Tuesday in NZ) with markets looking for a beat on the previous result of 12. There are no economic consensus forecasts for the release.
Apart from that the only other major release is the New Zealand Business PMI for March which came out at 53.4 in February and is generally expected to rise according to unofficial consensus forecasts.
Data and Events to Watch for the Pound
The consensus now appears that recent poor business survey data was as a result of the weather - the 'Beast from the East' - rather than a real economic slowdown.
This means the Pound is probably on course for more gains as the Bank of England (BOE) are still likely to raise interest rates in May as most expect.
Higher interest rates are the fuel which drives currency trends as international capital-flows now dictate currency values, and they tend to move to places where interest rates are higher, all other things being equal, as that's where they will earn the most return.
Yet notwithstanding the weather, some doubt has now crept into whether the BOE will still pull the trigger in May.
In the coming week, there will be a heavy focus on wage inflation since if that rises the BOE is more likely to want to cool the economy with higher interest rates. In this respect, the Markit IHS REC recruitment industry survey, out at 23.00 GMT on Tuesday, April 9, may be instructive, as it includes the latest pay information from head hunters, according to Chirs Williamson, Chief Economist at Markit IHS.
"With the Bank of England having laid the ground for a May rate hike, the focus will, therefore, fall heavily on pay trends. In that respect, the REC recruitment industry survey will give an update on new starter and temp/contract staff pay rates, both of which tend to move in advance of pay growth in the wider economy," he says.
Another major release in the week ahead is Industrial and Manufacturing Production data for March at 9.30 on Tuesday, and the
Trade Balance at the same time, which is forecast to narrow to -11.9bn in February from -12.3bn in the previous month - a narrower trade balance is sometimes positive for currencies, although the correlation of late seems to be waning.
Another major release is the Halifax house price index at 8.30 on Monday morning, with analysts carefully watching the result given the sector's lacklustre figures of late, and the especially poor Construction PMI result for March, which collapsed into contraction territory.
House prices ought not to be affected by the bad weather as much as construction 'activity' so this may be an important release for restoring some confidence in the sector.
If Halifax house prices show a deeper than expected fall, however, it may hit Sterling as it will almost certainly reduce the probability of the BOE hiking rates in May.
Current forecasts are for only a 0.1% rise in March versus the 0.4% increase in February, or 2.1% compared to a year ago vs 1.8% in February.
Finally, a heads up for Retails Sales in March comes in the form of the CBI Retail Sales monitor, out at 12.01 on Tuesday.
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.