PoundSterlingLIVE -
Image © Adobe (NASDAQ:ADBE) Images
The Pound is trending higher against the New Zealand Dollar, but near-term consolidation is possible.
For the Pound to New Zealand Dollar exchange rate (GBP/NZD), we would expect some soft price action in the coming hours as a small pullback from the 2.2696 resistance area can continue.
However, this would be a shallow pullback and will be confined to a short timeframe, as the ultimate expectation is that the pair ends the week higher than where it started.
Above: GBP/NZD chart at daily intervals.
Looking at the chart, the upward trend line has not been broken, confirming that GBP/NZD is in a broader uptrend and that periods of weakness and consolidation will ultimately find support ahead of an extension higher.
We are currently in one of those periods, and as the chart suggests, it can run for a little while longer before we need to question whether the rally is, in fact, coming to an end.
It appears that gains are temporarily capped at 2.2696, which is Friday’s high and a resistance area from early March.
Our preference is to expect a move above here, as the pair is currently trading above a rising nine-day exponential moving average, which keeps us constructive in the near term.
Based on this, a move to 2.28 is on the cards for the one- to two-week timeframe.
Technicals aside, there should be some volatility to look forward to midweek as the UK releases inflation figures for April.
The market consensus forecast is that prices surged 1.1% month-on-month in April, launching the annual rate far beyond the Bank of England’s 2.0% target to 3.3%.
Should the figure beat expectations, the market will come to terms that the UK might have a mere two more interest rate cuts to look forward to over the remainder of the year.
This would act to support the all-important UK bond yields that drive FX market flows, and support Pound Sterling in the process. This could facilitate a move higher in GBP/NZD.
However, we are cautious about expecting too much from the domestic data, given the FX market is more beholden to developments in the U.S. trade war and the stock market response.
Investor morale has steadily improved through April and May now that U.S. President Donald Trump has shown a willingness to row back on his April 02 tariffs, and struck trade accords with the UK and China, with a promise to deliver more.
The improvement in sentiment is reflected in rising stocks, which have provided a supportive backdrop for the NZ Dollar to rally, pushing GBP/NZD back from its multi-year peak at 2.32.
However, there is now a sense that we have reached peak optimism in the wake of last Monday’s China-U.S. accord, with investors left to fret over the fact that we are heading for a world of significantly higher tariffs, regardless.
Lingering market anxieties have put a lid on the New Zealand Dollar, reflecting the GBP/NZD’s steady rise from lows at 2.22.
This is the contextual theme we expect to continue supporting a steady, albeit shallow recovery near-term.
An original version of this article can be viewed at Pound Sterling Live