NZD Quarterly update

The New Zealand Dollar has recovered strongly from the Covid 19 panic-induced 2.09 high we saw in the GBPNZD exchange rate back in early April. This recovery is due to a number of factors; how well the New Zealand authorities managed the initial covid outbreak, the recovery in the Chinese economy (which is a big export market for New Zealand) and a shift in investors’ attitudes towards risk as  the global economy tentatively emerges from lockdown. Sub 1.9100 levels have already been seen in July.

This week’s underwhelming UK economic growth data continued to add pressure on the pound and stopped the GBPNZD mini-recovery at 1.92. However, improved UK consumer inflation data early on Thursday gave the Pound some support and a small-scale bounce ensued.

Looking forward, there is obviously a good chance of volatility. If we see a second outbreak/further global lockdowns we would expect the NZD to come under pressure due to so called ,risk-off trading. i.e. investors removing some of the risk from their portfolios by purchasing what are perceived to be safer assets. In other words, that would incite investors to flood to Gold, the US Dollar and similar safe havens. If, however, we see a continuation of the global easing of restrictions, then the rates should hold steady.

It will then be about the long term impact of the lockdowns and how the UK and NZ economies react. Generally, as the NZD remains strong compared to the 10 year average, this looks like a good opportunity to buy GBP and take advantage of the Pound’s weakness. On the other side of the equation, GBP sellers might prefer to wait for the key psychological level of NZD 2.00 to the Pound and convert GBP to NZD there. Obviously, there is no guarantee this will emerge and, there is an argument that Sterling ought to further weaken as we near the year-end deadline for Brexit.

The current range is characterised by GBP buying support at 1.90 and NZD  buyers providing resistance to further gains in this pair around resistance at 2.00.