GBPNZD Quarterly Report
Technical analysis suggests there are support levels for pound Sterling to New Zealand dollar (GBP/NZD) exchange rates at 1.8552. Rates are likely to trade between 1.8552 and 1.9181 until we see either a continued sell-off in the pound or a New Year bounce as the fortunes improve for the UK economy/deterioration of trading conditions in China and consequently New Zealand (NZ).
Reasons for continued GBP weakness
Brexit Trade Deal – Although a Brexit deal agreed was reached it was not heralded as a particularly good deal for the UK. With no financial services deal in the Brexit Trade Agreement, it triggered an outflow of funds from the City of London across to Frankfurt/Paris/Berlin etc. This will directly reduce UK Gross Domestic Product (GDP) and importantly affect tax income for the Treasury further adding pressures to the UK as the Brexit detail is worked through over the coming months.
COVID -19 – The UK has been crippled by the Coronavirus it’s not under control by any means. With the new virulent UK strain, daily increase in cases and NHS struggling to cope, investors are moving funds away from the pound to other safer territories. Although a COVID-19 Vaccine Programme is now underway, England is back in lockdown with no end day revealed.
Reasons for continued NZD strength
COVID-19 –The number of cases across New Zealand remains under control, consequently, the economy is holding up and businesses are optimistic about 2021.
EU-China trade deal – Unlike the UK, NZ will see an increase in exports and demand generally. Equally the Chinese Communist Party have been flaunting their own success at keeping Covid “under control” as witnessed by the stark contrast in New Year celebration scenes in Wuhan compared with London, New York and other cities worldwide. A strong Chinese economy means a strong NZD.
Other factors
US election – with Biden close to moving into the White House and likely Democrats seizing control of the Senate, Democrat policies can now be pushed through. More spending, more healthcare, more debt for the US – which will see the USD continue to lose value.
The possible resumption of closer trade talks between the US and China after the breakdown in talks between the two superpowers last year. This would benefit the Kiwi obviously relative to the pound.
In Summary
There was no bounce in GBPNZD on the back of Brexit deal being agreed and looking at the charts it is possible we will see a continuation of this GBP sell-off firstly down to 1.82 and possibly as low as 1.77.
It is thought the pound will continue to struggle to make headway in the first quarter of 2021 UNLESS the UK government can get COVID-19 under control.
If however, we do see 3 weekly closes above 1.9181 first that should invalidate a further sell-off, we shall see.
The attached chart is GBP/NZD weekly chart and clearly shows that this pair has broken through a long term support level.
