GBPNZD rally continues in July

New Zealand Dollar Research Report

Sterling New Zealand Dollar (GBPNZD) FX Technical Analysis

Well I wrote a month ago that the price target for GBPNZD was 2.42 now that 2.20 had been breached, in the event it topped out at 2.40 but once again it’s reached that level far quicker than I was expecting. The market continued with the aggressive selling of the Kiwi through July in the run up to the July 22nd RBNZ policy meeting because Governor Graeme Wheeler had signalled to the market that more interest rate cuts were around the corner when they had released their policy statement at the previous meeting. So GBPNZD traded up from 2.30 barely pulling back at all in July as the market weighed up whether there was to be a 0.25% or 0.5% cut. As is often the case the market will “buy the rumour, sell the fact” or in this instance “sell the rumour, buy the fact” and it’s exactly how the Kiwi played after the event. Market participants had already priced in the 0.25% cut so the Kiwi strengthened after the decision.

The RBNZ policy statement is still very accommodative nonetheless - they’re having to deal with tumbling dairy prices, stubbornly low inflation and a weakening economic picture. Wheeler said in the statement “At this point, some further easing seems likely” and whilst the New Zealand dollar had declined significantly since April, further weakening was needed given weaker export prices. Global dairy prices have dropped almost a fifth in July to a 12 year low and analysts expect at least one, possibly two more rate cuts from the RBNZ this year.

As ever with currencies, how much of those future interest rates cuts have been priced into the NZD rate today? Well we’ve seen another pull back in GBPNZD over night as the Kiwi dollar gained. Comments again from RBNZ Governor Wheeler, this time speaking at the Tauranga Chamber of Commerce which were seen as more neutral than policy comments previously. Wheeler has been known to jawbone the currency lower in the past and some saw last nights speech as another opportunity to talk the Kiwi down, one that didn’t materialise.

Over the other side of the Pacific the US Federal Reserve Monetary Policy Committee are taking centre stage as I write, as ever the market looking for clues as to when the first of the US’ interest rate hikes will take place. The sooner it happens, the quicker the Kiwi will lose ground to USD which will in turn help to push GBPNZD higher.

Technically GBPNZD gained just over 5% in July topping out at 2.40 and since then has corrected lower. It should be noted that it has broken trendline support that began in April and if it does close the week below 2.3250 I believe a deeper fall will materialise. Certainly if that were to be the case I would expect we’ll see it drop to test 2.2700. It’s too early to say if the correction will turn into a more substantial pull back but just be slightly wary!

The next RBNZ meeting takes place on Sept 9th, and again in October, it’s likely that we’ll see another cut at one of those meetings and I would expect once again the market will sell the rumour, buy the fact.
Don’t forget you can use automated orders to your advantage, both limit and stop loss orders are valuable tools when dealing with volatile markets and as ever, speak to your consultant for the levels.