GBPNZD has flattened off, failing to sustain a break above 2.45

The RBNZ were active again in September, cutting interest rates to 2.75% from 3.0% in a move that was expected. The commentary from RBNZ governor was very downbeat however stating that “at this stage, further easing in the OCR looks likely”. The NZ economy is the weakest it’s been in 3 years and depressed diary prices are adding to exporters woes. In the aftermath of the announcement GBPNZD rallied but it failed to breach resistance which comes in around 2.45. Second quarter GDP came in lower than expected at 0.4%, 2.6% year on year slowing from 2.4% annualised from the previous quarter. The kiwi remained soft on the release as expectations grew for more monetary easing from the RBNZ in the coming months.

Unfortunately it was a case of two steps forward, one step back for the UK last month as well, the pound losing ground across all the majors. Economic data has been consistently below expectations - manufacturing, construction and service sector data disappointed, the largest contributor of which, the service sector came in at the lowest level in 2 years.

Moreover expectations for the first UK interest rate increase have been pushed back to Nov 2016 from early 2016 as inflation turns neutral and growth falters.

Meanwhile in China we’ve seen signs that their equity market is stabilising and manufacturing data beat expectations this week - it’s a case of any news that isn’t desperately bad will be met with a relief in commodity markets and risk sentiment, boosting the kiwi and it’s why GBPNZD finds itself back below 2.40.

The GBPNZD chart is looking similar to GBPAUD in September, both commodity currencies stabilised after weakening since April. The question remains whether GBPNZD has topped for the time being; whether it’s consolidating before another leg higher; or if there’s a deeper correction to come.

Technically GBPNZD has flattened off, failing to sustain a break above 2.45 and in the final week of Sept, prices broke down through 2.4250 and remain below the 20 day moving average (the wavy red line on the main chart). Currently it’s trading with a slightly negative bias. The rate bounced off the short term support line yesterday (thick blue line) and ideally prices need to remain above that line for a retest of the recent highs.

Buyers

You may wish to split your risk, target 2.40 initially with a portion and then the balance at 2.4350 - it’s worth placing a stop loss order below the 2.35 level that’s currently acting as support in case the market breaks lower. Downside targets are 2.3250 and on to 2.27

Sellers

If you wanted to hang on to see if this move becomes a deeper correction lower it would be sensible to have protection on the topside, so place stop loss order above 2.4250 and target 2.30-2.28 price