The outlook for the GBP to NZD conversion is negative in our view with a deterioration on the charts combining with pro-NZD fundamentals.
The GBP/NZD exchange rate has fallen from its May best towards 2.18 down to current levels around 2.11.
Such is the steepness of the decline that there is a strong possibility the pair could fall even further, although the 50-day moving average at 2.11 presents an obstacle to further downside, and only a clearance below that level would confirm more downside.
Another major support stratum lies at the 2.0805 level, made up of historical lows and the S1 monthly pivot, a level short-term traders often use to counter-trade the dominant trend.
A break below 2.0900, would provide confirmation of a continuation lower to 2.0810.
Alternatively it culd be argued the short-term trend which began at the April lows is still intact and may have higher to go, but if so we would ideally wish to see a break above the 2.2000 highs for confirmation, and an upside target situated at 2.2150.
The Fundamental Outlook Favours the NZD
The GBP/NZD has fallen on two factors which are likely to remain relevant through June:
1) The New Zealand ecnonomy continues to outperform expectations
2) Traders are unlikely to buy sterling ahead of the June 23rd vote with a wait-and-see approach hampering any sterling strength over the next three weeks.
The New Zealand dollar has held onto its recent gains having been supported by a 2.6% rise in Dairy prices according to the bi-weekly Global Dairy Trade auction.
Dairy products comprise the country’s largest single export, and a rise or fall in the commodity affects the kiwi, both directly and indirectly.
A rise means an increase in the aggregate demand for New Zealand dollars from buyers overseas such as in China which pushes up the currency.
A rise in diary prices also means there is less chance of the Reserve bank of New Zealand trying to weaken the kiwi to help distressed diary exporters.
Although it was a positive sign of a recovery in Dairy prices they still remain low by historical standards (see chart below), roughly at the level reached following the financial crash in 2009.
The chart below shows the average price paid at a bi-weekly international online auction in dairy products, called the Global Dairy Trade auction, which is considered a primary barometer for the market price in dairies.
The OECD has meanwhile confirmed that dairy prices will need to improve substantially before the New Zealand economy can said to be on a more stable footing.
The OECD said economic growth in New Zealand was projected to moderate to 3% in 2016 and to 2.7% in 2017.
Low dairy prices on exports and the end of earthquake-related building were the main factors cited for the slowdown in New Zealand.