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GBPNZD: Dovish RBNZ Fuels a Bullish Bias

GBPNZD: Dovish RBNZ Fuels a Bullish Bias

Nick Cawley, Strategist

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GBPNZD is set to move higher, on the back of a weaker NZD, but the move will only really take place if/when Brexit negotiations are finally settled. The Royal Bank of New Zealand today kept interest rates unchanged but turned dovish, saying ‘the more likely direction of our next OCR move is down’. The central bank pointed to below target inflation, slowing domestic and global growth and said that ‘the risk of a more pronounced global downturn has increased, and low business sentiment continues to weigh on domestic spending’. All in, a very expansionary policy meeting with rates now likely lower for longer.

How Central Banks Impact the Forex Market.

With the right-hand side of the pair expected to remain weak, expectations for the left-hand side, GBP, are more clouded. Brexit continues to cast a shadow over Sterling and the GBP will not move decisively until Brexit is resolved, one way or another. As we currently stand, UK PM Theresa May is forcing the issue in Parliament to try and get her Withdrawal bill passed at the third time of trying. If not a series of indicative votes are also being held, which if news flow is to be believed, point to a softer Brexit or a second referendum. Sterling however will not yet move higher until the possibility of the UK crashing out of the EU without a deal is removed from the negotiating table.

GBPNZD is currently propped up by a bullish upward trendline that started in mid-December last year. The rally did run out of steam at the end of February and has traded sideways to slightly lower since. The trend line however remains in place and today’s rally, post RBNZ announcement, has taken out all three moving averages, including the important 200-dma, and has broken through the 38.2% Fibonacci retracement level at 1.9282. A close above this level could open the way to the February 28 high at 1.9542 before a longer-term target of 1.9740 (23.6% Fib).

GBPNZD Daily Price Chart (June 2018 – March 27, 2018)

IG Client Sentiment Data shows how retail investors are positioned in a range of currencies and asset markets.

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on GBPNZD – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.com or via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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