GBP/NZD: Pound versus Kiwi in No Mans Land
GBP/NZD started the week on the front foot, climbing 1.8% before a weaker British pound pared the weekly gain against the Kiwi to +0.80%.
For obvious reasons, the British pound is in a state of flux. The last two weeks in Britain have seen a change of Prime Minister, the death of Queen Elizabeth, and King Charles III’s ascension to the throne. Either alone is enough to cause uncertainty for Sterling, but to lose a monarch and a PM at the same time is unprecedented. Not forgetting, this comes when the UK economy is on a knife edge.
Considering the recent developments, GBP/NZD is holding up pretty well — due to some positive economic data out of the UK last month. The unemployment rate remains close to a 48-year low at 3.8%. Furthermore, Gross Domestic Product contracted less than forecast last month. The retail Sales data also came in better-then-expected. Subsequently, analysts expect the Bank of England (BoE) to deliver a second-consecutive 0.50% interest rate hike at the next meeting.
However, there are concerns that inflation will soon skew those metrics back into negative territory. Moreover, a raft of industrial action in the UK threatens to derail the modest economic uplift. With this in mind, sterling’s gains may be limited.
A potential roadblock facing the Kiwi dollar is the economic slowdown in China. The world’s second-largest economy is New Zealand’s biggest trading partner. It’s estimated that NZ exported over $14 billion of goods to China in 2021, over $9 billion more than to Australia. As such, China’s slowdown could have dire consequences for new Zealand’s economy. Especially considering Australia’s reliance on Chinese buyers for its raw material. Subsequently, investors are torn as to whether the UK or New Zealand is in worse economic shape.
Pound to Kiwi Dollar Forecast
The daily price chart shows GBP/NZD is sandwiched between critical support around 1.8800 and significant resistance at 1.9180.
The support below the market links four multi-year lows in a tight range. Considering the confluent long-term support, the 1.8800 level should be a considered a must-hold for the British pound. If GBP/NZD decisively breaks below this threshold, we expect a fresh round of pound selling, as the last of the bulls throw in the towel.
Adding to the bearish tone, a descending trend line, aligned with the 50-Day Moving Average (DMA) at 1.9180, caps the upside. A close above the descending trend should encourage GBP/NZD strength, targeting the 100-DMA at 1.9255 (blue).
As a result, the pound is in no mans land — a close above resistance is bullish, a close below support is bearish. For this reason, our immediate view is neutral. However, that view is subject to change, depending on how GBP/NZD reacts in the coming weeks.
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GBP/NZD Price Chart
