At Risk of Breaking Down

5 Min Read

  • GBPNZD entering a downtrend
  • Downside momentum extends into a new week
  • Key support line now being tested
  • Breakdown here opens door to 1.9750

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Downside momentum is building and threatens to take the Pound to New Zealand Dollar exchange rate to its lowest level since May over the coming week.

GBPNZD is testing the major support line at ~2.0310, which has been successfully defended on several occasions in 2023 and could yet stall the New Zealand Dollar’s recent advance if sellers book profit here.

But, should the exchange rate break below here, risks for a move to 1.9756, which forms the May lows, are evident.

Above: GBPNZD shown at daily intervals with support line and DMAs annotated. Track NZD with your own custom rate alerts. Set Up Here.

Ongoing weakness in GBPNZD means the exchange rate has likely entered a downtrend.

The change in status from uptrend to downtrend results from the confirmed break last week below the 200-day moving average (DMA), currently at 2.0535. (See the blue line in the above chart).

“The 200 day moving averages can be key pivot points over long horizons and currencies along with other assets tend to get ‘trapped’ above or below their moving averages for months at a time,” explains W. Brad Bechtel, head of FX strategy at Jefferies.

“So when you see something making a move one way or the other through the 200dma, you want to try to assess whether we are in for a new period of structural strength (weakness) above (or below) the 200dma moving average,” he adds.

For GBPNZD, the prospect of a new period of structural weakness is now a possibility.

Driving the Kiwi’s advance is the supportive global backdrop courtesy of growing conviction that the Federal Reserve will soon start considering cutting interest rates.

This should boost global growth prospects and support currencies highly sensitive to sentiment, including the New Zealand Dollar.

Should global stock markets rally into year-end, expect the Kiwi to be a beneficiary and drive further GBPNZD downside.

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There are some domestic New Zealand data releases worth watching over the coming week, starting with the Q4 Westpac McDermott Miller Consumer Confidence survey, due on December 22.

The ANZBO business confidence survey results are out on December 19. Cooling inflation and falling domestic interest rates are likely to boost sentiment, as is the formation of a new government. But, a slowing economy and historically elevated interest rates will ensure no major rebound is likely.

The latest dairy auction results are due on December 20, meaning all this week’s releases are second-tier and unlikely to have a lasting impact on NZD.

The same cannot be said for the GBP perspective, where inflation data are due midweek and retail sales on Friday.

CPI inflation is expected to print at 4.4% year-on-year, down from 4.6% previously, with the core CPI reading at 5.5%.

Should the data undershoot, we could see the Pound come under pressure through the midweek session.

“Base effects in the food category is likely to be the largest source of downward pressure in November. Lower petrol prices should also weigh on headline inflation,” says a note from Oxford Economics.

Retail sales and quarterly GDP figures will cap the week off, with markets looking for retail sales to print at -1.1% year-on-year for November. Quarterly GDP is expected to be flat at 0% quarter-on-quarter in the third quarter.

Note that much of the sting in GDP from a market perspective will have been removed by last week’s monthly GDP release, so this is expected to have a limited impact on the Pound.

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