Forecast for the New Zealand Dollar v Pound Sterling in the Week Ahead
The pound is tipped to continue falling against the NZ dollar over the medium-term. But NZD bulls will be hoping this week's data does not add to a growing negative trend in economic releases.
Amidst signs of rapidly weakening inflation data and continually falling commodity prices – especially in the dairy sector which is New Zealand’s principle export, the pressure is increasing for the RBNZ to lend a helping hand by cutting rates.
The exchange rate with the pound has steadily leeched lower over recent weeks, falling from 2.2470 on January 15 to 2.1449 at the recent multi-month lows.
Should expectations grow that interest rate cuts are nigh, the NZD could find pressure turn decisively negative.
Recent data showed a fall in the Performance Domestic Services Index to 54.4 from 58.5 in January.
Retail Sales (Ex Inflation) slowed to 1.2% in Q4 from 1.6% in Q3 and under expectations of 1.5%.
The Reserve Bank of New Zealand 2-year Inflation Expectation for the first quarter fell to 1.63% from 1.85% previously.
The Global Dairy Auction on Tuesday showed a further deterioration in Prices which fell by an average of -2.8%.
All these add up to a steadily deteriorating picture for the economy and prices, with it ever more likely the RBNZ may have to pull the trigger at some point in the near future.
The week ahead, meanwhile, kicks off with Credit Card spending (yoy) in January, which previously showed a 7.4% rise in December.
Then January Trade Balance data comes out on Thursday - previous results showed a -53m deficit in December and -3.549bn in the year-to-date (December).
On the technical front the pound looks to be weakening versus the New Zealand dollar:
Ever since the 2.1515 December lows gave way the pair has looked decidedly more bearish.
On a weekly chart the corrective move from the August 2015 highs has the potential to be more than just a correction - it could now be the start of a longer-term bear trend.
On the daily chart, however, the pair has been moving steadily lower within a gently sloping descending channel and it will probably continue zig-zagging lower, to a possible final target at 2.1087.
The Money Flow Index, which is a useful indicator in sideways markets to predict which way the security will break, is dipping lower, in line with the exchange rate, indicating a probable continuation of the down-trend further.
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