NZ meat exports have rebounded, but as a small, open exporter, New Zealand is proving highly sensitive to the evolving global tariff war. Image © Adobe Images
The Pound's recent pullback against the New Zealand Dollar is fading and a rebound is possible in the coming five days if a small technical obstacle can be overcome.
A pullback in the Pound-to-New Zealand Dollar exchange rate (GBPNZD) extended to 2.1842 last week, where some buying interest soon emerged, and a shallow recovery takes the market to 2.1937 at the time of writing on Monday.
Looking at the daily chart shows some support layered at the 50-day exponential moving average (EMA) located at 2.19:
The chart also suggests the market must break above the nine-day EMA at 2.1959 to open the door to a rally in the coming days. We think this is likely and think 2.21 could come into contention again over a two-week timeframe.
Whether or not the British Pound can move higher against the NZ Dollar will depend on the global mood music and to what extent global tariff anxieties are ratcheted up by the U.S. and the retaliations they provoke.
On Monday, U.S. President Donald Trump will announce the details of a 25% tariff on all steel and aluminium imports, expanding his trade conflicts to the metals sector in a new burst of protectionism from Washington.
He said on Sunday that this week will also see the U.S. announce reciprocal tariffs on countries that currently have import sanctions on U.S. goods. The unspecified nature of the threat should foster enough uncertainty to bolster the USD and weigh on risk-sensitive currencies such as NZD.
"U.S. tariffs will result in slower trading partner growth, even if they are not directed at NZ exporters specifically. Hence this is a negative shock for NZ," says Kelly Eckhold, Chief Economist for NZ at Westpac.
"One thing we should keep in mind is that 'tariff' is no longer a dirty word on the global stage. Countries will likely be more emboldened to deploy protectionist policies in the future now that the US, Canada, Mexico, and Europe are using these tools more earnestly. None of this is good for NZ's goal of breaking down trade barriers to facilitate a better environment for our exporters," he adds.
Beyond tariffs, Thursday's release of the RBNZ Survey of Expectations will be the NZ data highlight of the coming week.
The results should indicate that domestic inflation expectations remain comfortably close to the 2% midpoint of the RBNZ’s target band. This would allow the central bank to proceed with another 50 basis-point interest rate cut later on February 19.
"However, concerns about the global outlook have increased and the NZ dollar has dropped sharply, meaning the risks for inflation have tilted to the upside. We'll be watching to see how big of an impact that has had on longer-term expectations, which will be an important consideration in the RBNZ’s upcoming policy deliberations," says Eckhold.
On Friday, Stats NZ will release its monthly price data, which will provide a signal on the evolution of domestic inflation. Any surprising strength in the data could underpin the NZD into the weekend, although the survey only covers around 45% of the CPI basket, which means it won't have a lasting market impact.
The UK releases some important GDP numbers on Thursday, and the market thinks the economy shrank 0.1% in the fourth quarter of the year, following on from the third quarter's 0% growth.
The UK economy has flatlined, yet inflation is rising, creating 'stagflationary' conditions, which are rarely supportive of a currency and help explain GBPNZD's fall in January.
Risks to Pound Sterling would be Thursday's GDP outturn undershooting the already dire -0.1% expected.
Following last week's Bank of England decision, we have a speech from Governor Andrew Bailey to look forward to on Tuesday, and fellow Monetary Policy Committee member Megan Green speaks on Wednesday.
But it's MPC member Catherine Mann, who shocked observers by voting for a 50 basis point cut last week, who will attract the most attention. She speaks on Tuesday and will explain why she has dramatically changed tack for someone who been a staunch monetary hawk to a fully fledged dove. Her thinking behind the switch will be intriguing.
Will Bailey, Mann and Green shift the dial for the Pound? No, and we would look for any resultant action in GBPNZD to be faded.