The GBP to NZD conversion has fallen sharply towards 2.08 over recent days but we would expect the market to settle ahead of the RBNZ decision on Thursday which should reignite the market once more.
The pound / New Zealand dollar exchange rate has slipped towards 2.08, but is seen stabilising.
Part of the stabilisation can be attributed to fresh polling data concering the EU referendum going the way of the Remain vote. With the polls likely to be evenly matched around a 50/50 split going forward we could well see sterling stabilise.
Focus now turns to the Reserve Bank of New Zealand's June interest rate and policy decision.
Events in the US may have unwittingly increased pressure on the RBNZ to cut interest rates from their present very high 2.25%.
The surprisingly low Non-Farm Payrolls have now completely extinguished the hope of the Federal reserve increasing rates in June or July.
Given the prospect of historically low rates for longer in the US, investors are already shifting capital into higher yielding accounts in New Zealand, increasing demand and therefore the value of the kiwi.
“Lower rates are needed now more than ever to curb appetite for the higher-yielding NZD,” say TD Securities.
According to TD Securities, the RBNZ will want to curb this tendency as a weaker kiwi supports New Zealand’s struggling exporters, especially her dairy farmers who are struggling as it is from a drop in dairy prices globally.
An exchange rate disadvantage would be most unwelcome. Inflation is also seen as being uncomfortably low, therefore a rate cut would achieve a number of policy objectives
TD Securities think “not cutting” will come as, “a surprise to the global investor community since Wheeler has missed his 2% inflation target since 2012 while the RBA missed its inflation target once and cut at the first opportunity. FX will not be kind if the RBNZ isn’t uber-dovish.”
Therefore, if the RBNZ does not cut rates expect the pound to continue to fall and the NZD to rise.
A rate cut to 2.0% would of course weaken the kiwi, but we would expect any weakness to be relatively limited.
GBP/NZD Reverting Back to Longer-Term Trend?
The pound ended the first week of June as the worst performing currency amongst the worlds ten largest currencies.
The New Zealand dollar, on the other hand, ended the week as the best performer.
This should give an indication of where momentum lies as we walk into the new week.
The very short-term trend, as gauged by the 4-hr chart, is showing the progression of peaks and troughs has turned bearish, and in the short-term is expected to continue.
The longer-term trend is bearish, so the exchange rate is now falling in line with the broader trend.
We see a continuation down to the S1 monthly pivot situated at 2.0774 as an initial target.
For confirmation look for a break below 2.0900.
Another move below S1, signalled by a break below 2.0600 would probably confirm a continuation down to 2.0343 April 19 lows.