Talking Points:

- GBP/USD Stages Larger Recovery as BoE Votes 8 to 1; Rising U.K. CPI to Stoke Greater Dissent.

- Dismal New Zealand GDP Drags on NZD/USD; Attention Turns to RBNZ Interest Rate Decision.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.2359

1.2372

1.2241

68

131

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using Trading View

  • GBP/USD extends the rebound from earlier this week as the Bank of England (BoE) unexpectedly voted 8 to 1 to keep the benchmark interest rate at the record-low of 0.25%, with board member Kristin Forbes pushing for a 25bp rate-hike; the series of failed attempts to close below the 1.2100 (61.8% expansion) handle may push Cable back towards the top of the current range especially as the Relative Strength Index (RSI) turns around ahead of oversold territory.
  • In turn, the U.K. Consumer Price Index (CPI) on tap for the week ahead may heighten the appeal of sterling and fuel a growing rift within the BoE as the headline as well as core rate of inflation are projected to pick up in February; it seems as though Governor Mark Carney and Co. are on course to gradually move away from its easing-cycle as price growth is expected ‘to rise above the 2% target over the next few months, before peaking at around 2¾% in early 2018 and drifting gradually back down towards the target thereafter,’ but the majority appears to be in no rush to remove the highly accommodative stance as officials reiterate ‘monetary policy can respond, in either direction, to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target.
  • At the same time, the Federal Open Market Committee (FOMC) appears to be taming market expectations as Chair Janet Yellen and Co. continue to forecast a terminal fed funds rate close to 3.00%, but it seems as though the central bank is on track to deliver another rate-hike over the coming months as the economy approaches ‘full-employment.’
  • With that said, GBP/USD may continue to operate within the range carried over from late-2016, with a break/close above 1.2370 (50% expansion) opening up the next topside region of interest around 1.2460 (61.8% expansion) to 1.2490 (38.2% retracement) followed by 1.2630 (38.2% expansion) to 1.2680 (50% retracement).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

NZD/USD

0.6980

0.7046

0.6972

65

74

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using Trading View

  • NZD/USD pares the advance following the Federal Open Market Committee (FOMC) interest rate decision as New Zealand’s 4Q Gross Domestic Product (GDP) report showed the growth rate narrowing to an annualized 2.7%, with the pair at risk for further losses as the Fibonacci overlap around 0.7040 (50% retracement) to 0.7060 (38.2% retracement) appears to be acting as near-term resistance; the Relative Strength Index (RSI) seems to be highlighting a similar dynamic as it continues to carve a series of lower-highs and struggles to break out of the bearish formation carried over from the previous month.
  • Nevertheless, the Reserve Bank of New Zealand (RBNZ) is widely expected to keep the official cash rate at the record-low of 1.75% on March 23, and central bank may continue to endorse a wait-and-see approach for monetary policy as ‘economic growth in New Zealand has increased as expected and is steadily drawing on spare resources;’ more of the same from Governor Graeme Wheeler and Co. may limit the downside risk for NZD/USD as officials appear to be approaching the end of the easing-cycle.
  • However, the RBNZ may strike a more dovish tone this time around as the recent developments coming out of the real economy casts a weakened outlook for growth and inflation, and the central bank may look to toughen the verbal intervention on the local currency as Governor Wheeler argues ‘a decline in the exchange rate is needed.
  • Lack of momentum to push back above the 0.7040 (50% retracement) to 0.7060 (38.2% retracement) zone may open up the downside targets for NZD/USD, with a break/close below the Fibonacci overlap around 0.6950 (38.2% retracement) to 0.6980 (23.6% retracement) raising the risk for another run at the December low (0.6862).

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--- Written by David Song, Currency Analyst

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