GBP/NZD could drop significantly as BoE, RBNZ policy divergence grows
Fawad Razaqzada February 15, 2016 6:50 PM
This week’s sheer number of top-tier economic data from the UK economy means the focus will be on sterling, which has been pounded recently because of receding expectations about a Bank of England rate rise this year. In fact, as my colleague Matt Weller reported earlier, contrary to economists’ expectations of a rate rise, traders have actually started to expect a rate cut as the more likely scenario. Their conviction is only likely to grow should this week’s UK macroeconomic data disappoint expectations. Indeed, given the current sentiment and the so-called "Brexit" risks, it would probably require some significantly stronger data to change the market’s perception, which appears unlikely. So, while there is a possibility for a respite in the selling pressure, things could go from bad to worse for the pound, especially against currencies where the central bank is more hawkish, such the Australian and New Zealand dollars. Both the RBA and RBNZ appear content with the recent weakness of their respective currencies and also the current level of interest rates. In New Zeeland, interest rates are significantly higher at 2.5% than most other developed nations. The GBP/NZD could therefore weaken a lot further over the long term outlook if the disparity between the RBNZ and BoE’s policies grow. In the very short-term outlook, the GBP/NZD could also suffer if (1) UK’s data disappoints and/or (2) macro pointers from New Zealand beat expectations this week. Otherwise, a short-term relief rally could be on the cards.
- This week’s key UK data include:
- Tuesday: CPI (09:30 GMT)
- Wednesday: average hourly earnings, claimant count, unemployment rate (09:30 GMT)
- Friday: retail sales (09:30 GMT)
- From New Zealand, the main data releases this week include:
- Tonight: retail sales (21:45 GMT)
- Tuesday: quarterly inflation expectations (2:00 GMT), GDT price index (Tentative)
- Wednesday: PPI input & output (21:45 GMT)
From a technical point of view, the outlook for the
In the event of a break below the 2.1500 support level, there are not much further short-term reference points seen until 2.1000, which was formerly resistance. So, there’s scope for a sharp drop in the GBP/NZD this week. Below 2.1000, the next potential bearish target could be the 61.8% Fibonacci retracement of the entire 2013-15 upswing, at 2.0575, or even the lower trend of the bearish channel and psychological at 2.0000.
On the other hand, a decisive break above the resistance trend of the bearish channel and the 50-day moving around 2.0230 could pave the way for a sharp rally. The GBP/NZD’s next move above 2.0230 would then depend on what it will do around the key resistance area between 2.2300 and 2.24500. But as things stand, the more likely outcome is a breakdown than a breakout.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.