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2016

New Zealand Dollar Research Report

Published: Friday 08 April 2016

GBPNZD remains in a downtrend as the Pound is seen as a risk to investors who are worried about the outcome of the EU referendum in June. Whilst market analysts have mixed views as to how much “Brexit” is priced in, consensus suggests the Pound has significant downside should voters decide that the UK is better off on its own. The polls remain neck and neck however, a recent YouGov poll showed little difference between the camps. Interestingly the threat of a collapse in the Pound is one of the major reasons why voters may be swung in favour staying in the EU – better the devil you know as they say.
 
Over in New Zealand, data has been mixed – the QV House Price Index showed prices dropping annually in March whilst the Global Dairy Trade auction saw prices increase slightly. Inflation was 0.1% in 2015 and the first quarterly reading for the consumer price index will be released on April 18th. The headline figure is expected to come in at 0.4% and the release will give us a clue as to whether the Reserve Bank of New Zealand will be cutting interest rates again in the short/medium term. Expectations are for them to lower interest rates by 0.25% to 2.0% at either the April 28th meeting, or hold on until their following meeting on the 9th June.
 
Even with the RBNZ’s surprise interest rate cut on 9th March, the Kiwi Dollar has remained strong – this is mainly due to the increase in risk appetite around the world. There has been a shift in US monetary since the start of the year – December saw the Fed forecast four interest rate increases in the States which was dampening risk appetite, commodity prices and demand on higher yielding currencies like the Aussie and Kiwi Dollars. March arrived and Fed Chair Yellen suggested that interest rates may only increase twice this year – the shift in policy triggered with concerns over slowing global growth, falling US domestic output and low inflation.
 
Looking ahead, if the RBNZ elect to cut rates in April/June and the US decide on an interest rate hike in June/July, it will keep the NZD under pressure and in any normal year that would translate into a rally for GBPNZD. This year however, investor’s appetite to the Pound and concern over Brexit will overshadow any data releases for the next few months.  
 
In terms of the technical, the Pound remains in a downtrend against the Kiwi Dollar – support comes in at 2.0550 which was tested last week and resistance is at 2.10. The rate is on the cusp of a breakout with a downside target of 2.0250 initially and then onto 1.90. On the top side, a break up through 2.10 would give a price target of 2.15 initially and onto 2.25. We should see the breakout occur in the next week or two so placing a stop loss order below 2.05, say 2.02 would give you cover on the downside. Also a buy order at 2.08 could be used in combination with the stop loss at 2.02 so that you ring fence the market and limit your exposure to the downside.
 



FX Research and analysis by Alastair Sweetman

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