- Sterling's fall benefits Kiwi Sellers
- Uncertain political landscape to limit Sterling gains
In the aftermath of the UK's vote to leave the EU, all hell; has broken loose. Sterling was thumped down by selling pressure as investors and traders pulled out of the uncertainty over the fate of the UK economy and shifted their funds elsewhere. The very attractive interest rate yield that New Zealand can offer makes the Kiwi Dollar a very attractive currency for those investors. So while the Pound suffers and the NZD benefits from inward yield seekers, the GBPNZD rate is bound to remain low.
We are back down to levels not seen since 2013 and that is quite a modest fall in comparison with the GBPUSD rate. However, the New Zealand authorities will not want the pain of a very strong NZ Dollar to continue for any longer than it has to and there are heavy hints that the Reserve Bank of New Zealand may cut their base rate to deter inward investment and allow the NZ Dollar to weaken – or at least to stop appreciating.
The low we saw in 2013 was NZ$1.76 and there is every reason to expect that kind of a fall to happen again but, having fallen below the level that underpinned this exchange rate between mid-2013 and mid-2015, this exchange rate is looking heavily oversold at the moment. Therefore, we can equally expect some sort of rebound. If that bounce does happen, it would be optimistic to target anything above NZ$1.93 at this stage. That was the previous support level for the Pound (that mid-2013 to mid-2015 support level) and is now the resistance line.
For NZD buyers
Any bounce in the GBP-NZD exchange rate is likely to hit heavy NZD buying interest around that NZ$1.93 level. If that doesn’t give way, NZ$ 2.00 is a psychological barrier to further gains and the target above there, if seen, would be NZ$2.06
For NZD sellers
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These are great times if you are looking to sell your NZD and buy the Pound. Being able to do so at exchange rates we haven't seen since June 2013 is a bit of a coup and, as the markets were forecasting a 'Remain' vote, as unexpected as it is gainful. If you are risk-averse, you will cover some or all of your needs at current levels. If you have more time on your hands and are a bit more ambitious, you may be tempted to look for the 2013 low of NZ$ 1.77. Anything below there is much more speculative.
FX Research and analysis by David Johnson