Sterling New Zealand Dollar (GBPNZD) FX Technical Analysis

• Nzd dollar struggles after Wheeler coments
• Disappointing data weighs on the Kiwi
• RBNZ leave rates on hold

Sterling New Zealand Dollar (GBPNZD) FX Technical Analysis

The GBP/NZD rates are continuing to tease and frustrate at present by flirting with 2.00 but not quite being able to get on with the job and push higher.

The kiwi dollar has spent much of the last month or so on the back foot following comments from Graeme Wheeler (governor of the RBNZ) that the strength of the kiwi dollar was both “unjustified and unsustainable”. We have also seen disappointing data releases from NZ, including the Fonterra milk auction results and a significant decline in exports.

With the RBNZ intending to leave interest rates on hold for the time being, following their recent tightening cycle support for the kiwi has waned and the dollar has weakened accordingly.

Unfortunately, GBP/NZD has been unable to make gains despite USDNZD falling. This is due to the fact that sterling has lost ground against pretty much every major currency falling from 1.70+ to 1.65 vs the US dollar), as we have had a bit of a mixed bag of data over the course of the month. The Bank of England voted 7-2 in favour of leaving interest rates on hold for the time being. This was significant as it was the first time in over 3 years that the vote was anything other than 9-0 with 2 members voting for a rate hike. This sent the rumour mill into overdrive with speculation that interest rates would go up this side of Christmas, however with UK consumer price inflation falling to 1.6% (well below the BOE’s target rate of 2%) and retail sales continuing to disappoint I would suggest the market is getting a touch ahead of itself and we’re yet to see any real impact on sterling.

Technically, GBP/NZD remains within the ranges of the last 2 years or so (1.90-2.02) but is encountering strong resistance in the 1.995-2.00 region which we’re struggling to break at this point. We have tried to break this resistance on 3 occasions so far this month and it would appear we need to see some added impetus in order to push us through and complete orders at 2.00. We have formed a short term uptrend however, which currently underpins the market in the 1.9728 region this coupled the recent lows in the 1.965-1.96 region will provide us with support. As long as we stay above these levels we stand a reasonable chance of another test of 2.00.

For NZD Buyers

The market continues to frustrate and believe me I share your frustration. We have struggled to achieve rates of 2.00 since Feb and the RBNZ began their tightening cycle earlier this year, in the intervening 6 month period the market has peaked in the 1.98-1.99 region. If you had traded at this level as opposed to holding on for 2.00 the interest rate advantage of holding the funds in NZ dollars as opposed to sterling would have more than compensated you for the difference in the exchange rates. With this in mind, it may be worth placing orders in the high 1.90’s with a view to getting the funds moved close to the 2 year highs and getting an interest rate advantage. If you have more time on your side, I would suggest 2.00 is still the level to be trading at as it has capped the market since July 2012. A break below 1.96 would be a concern in the short term but support at 1.928-1.935 has underpinned the market since April.

For NZD Sellers

In the short term the kiwi looks vulnerable to an improvement in sterling’s fortunes, this may not happen until the Bank of England start raising interest rates (best guess after the UK election next year). However anything that suggest this time frame is being brought forward and we should she sterling rally. As a seller of kiwi, I would suggest keeping a close eye on the rates as long as resistance in the 2.00 region holds you stand a chance of achieving better rates. In the short term the market is supported in the 1.9728-1.965 region with longer term support in the 1.935 region as mentioned above. I would recommend targeting these kind of levels for a portion of your requirements. A break above the 2 year highs of 2.0227-2.043 would call this into question and suggest a move towards 2.10 and above is to follow.