Pound-to-New Zealand Dollar Week Ahead Forecast: New Highs, But Overbought


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The pound has just hit its highest level against the New Zealand Dollar since the April tariff 'liberation day' spike.

A new day and a new high for the pound to New Zealand Dollar exchange rate (GBP/NZD) as it trades at 2.3253, a level last seen on April 09.

Be under no doubt, the gains are not a reflection of any particular strength on pound sterling's behalf, rather it serves as a reminder of just what a laggard the Kiwi is proving at present.

In fact, the antipodean currency's weakness is a major feature of FX markets, catching many seasoned economists unprepared and causing them to rejig their forecasts, yet again.

The weakness in NZD is not something we would stand in front of, and as such, the week ahead looks agreeable to further GBP/NZD upside.

Just bear in mind, however, that the Relative Strength Index (RSI) is now reading at 70, which triggers overbought conditions on the technical radar.

Also, spot is now quite diverged from the nine-day exponential moving average at 2.2982, which invites the possibility of some mean-reverting tendencies.

So, a setback near-term is possible, but again, all signs are ultimately pointed higher.


Above: GBP/NZD at daily intervals with the RSI in lower panel.


GBP risks are nevertheless to be considered in the coming days as the UK's Labour Party holds its annual conference.

Expect it to be dominated by left-leaning headlines, particularly on the economics front, where we will hear calls for increased public spending.

The risk is that the Chancellor, Rachel Reeves, ultimately caves to these calls and increases the UK's growing deficit.

The worst-case outcome would be another crash in yields and the pound, similar to that of Liz Truss's mini-budget fallout of 2022.

Looking at the data calendar, the focus this week falls on New Zealand's business confidence reading, which is due on Tuesday and should signal whether or not sentiment is turning for the better.

The September Business Outlook survey will be the first since the recent weaker-than-expected GDP result that absolutely torched the NZD, and economists will be watching to see if that softness is continuing or if conditions are starting to turn.

"While businesses continued to express confidence about the future, buoyed by interest rate reductions, surveys have continued to highlight tough current trading conditions," says a weekly economic preview note from Westpac Bank.

New Zealand's GDP print of September 18 came in at a quarterly -0.9% for the second quarter, which is substantially below the -0.3% estimate.

The annual reading was at -0.6%, which significantly undershot estimates for 0%. These data tell us the New Zealand economy is in a poor place, and it could do with some additional support from the government and other policymakers.

These data cranked up the odds that the RBNZ would need to lower interest rates further.

"The case for further rate cuts is clear amid spare capacity that is widening faster than anticipated and growth momentum undershooting forecasts," says Bader Al Sarraf, Research Analyst at Standard Chartered Bank

Globally speaking, the U.S. labour market report at the end of the week will be the major event to keep an eye on as a soft reading would bolster the case for further rate cuts at the Fed, which will weigh on the dollar and allow pro-risk currencies like the Kiwi to appreciate.

The market looks for approximately 55K jobs to have been added in September, meaning this is the bar that must be crossed.

Beware, though: U.S. data has been coming in at above-consensus levels over the past month, signalling the economy risks performing better than anyone is expecting going into year-end.

It raises the odds of Friday's non-farm payrolls report beating expectations and lifting the dollar, at the expense of NZD exchange rates.


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