GBPNZD braces for double risk cocktail :: InvestMacro

• RBNZ decision & UK CPI in focus

• NZD best performing G10 currency MTD
  

• GBPNZD trapped in 1500 pip range
  

• Prices bearish on D1 charts

• Bloomberg FX model: 76% GBPNZD – (2.0510 – 2.0924)

High impact events ranging from central bank decisions, key inflation data and speeches by policymakers may present fresh trading opportunities in the week ahead:

Sunday, 19th May

• USDInd: Fed Chair Jerome Powell speech

Monday, 20th May

• CN50: China loan prime rates
• HK50: Hong Kong jobless rates
• JPY: Japan tertiary industry index
• TWN: Taiwan export orders
• SEK: Riksbank Governor Erik Thedeen speech
• US500: Fed speeches

Tuesday, 21st May

• AU200: Australia consumer confidence, RBA minutes
• CAD: Canada CPI
• NGN: Nigeria rate decision
• US30: Fed speeches

Wednesday, 22nd May

• JP225: Japan core machinery orders, trade
• NZD: RBNZ rate decision
• ZAR: South Africa CPI
• TWN: Taiwan jobless rate
• GBP: UK April CPI
• USDInd: FOMC minutes
• NAS100: Nvidia earnings

Thursday, 23rd May

• EU50: Eurozone PMI’s, consumer confidence
• GER40: Germany manufacturing PMI
• HK50: Hong Kong CPI
• SG20: Singapore CPI, GDP
• TWN: Taiwan industrial production
• UK100: UK Manufacturing PMI

Friday, 24th May

• CAD: Canada retail sales
• GER40: Germany GDP
• JP225: Japan CPI
• NGN: Nigeria GDP
• CHF: SNB President Thomas Jordan speech
• SG20: Singapore industrial production
• USDInd: US University of Michigan consumer sentiment

Our attention falls on the GBPNZD which has been trapped within a 1500-pip monthly range since August 2023.

Note: GBPNZD is a minor currency pair – one that does not include the USD but has at least one of the world’s majors.

However, prices have trended lower over the past few weeks. This could be based on shifting expectations over the Bank of England (BoE) and Reserve Bank of New Zealand’s (RBNZ) next policy move.

Interestingly, Sterling is down against most G10 currencies month-to-date.

But the New Zealand dollar is flexing its muscles across the board.

Keep all the above in mind, here are 3 factors that could rock the GBPNZD.

    1) New Zealand rate decision

The Reserve Bank of New Zealand (RBNZ) is expected to leave rates unchanged at 5.5% next week.

So, investors will direct their attention toward the policy statement and media conference for clues on future policy moves. It is noteworthy that first-quarter inflation printed hotter than expected, injecting RBNZ hawks with fresh inspiration. Any more hawkish hints during the meeting may further push back bets around when the central bank will start cutting rates.

Traders currently see a 50% probability of a 25-basis point RBNZ cut by August with this jumping to roughly 95% by October.  

• The GBPNZD could sink lower if the RBNZ strikes a hawkish note and suggests that rates will remain higher for longer.

• If the central bank signals lower rates down the road, this could push the GBPNZD higher.

 

    2) UK April CPI report

The incoming UK April inflation report will likely impact bets around when the Bank of England will start cutting interest rates.

Markets are forecasting:

• CPI year-on-year (April 2023 vs. April 2024) to cool 2.1% from 3.2% in the prior month.
• Core CPI year-on-year to cool to 3.6% to 4.2%.
• CPI month-on-month (April 2024 vs March 2024) to cool 0.2% from 0.6%.

Headline inflation is expected to cool significantly with core inflation figures tagging along. A drop in household energy prices over the past year is expected to be the main driver behind this. Should the CPI report match or even print lower than these expectations, it may encourage the BoE to cut rates sooner than expected.

Traders see a 62% probability of a 25-basis point BoE cut by June with a move in August fully priced in.

• A soft UK inflation report could send the GBPNZD lower as sterling weakens.

• Should the CPI report print above market forecasts, the GBPNZD may push higher.

 

    3) Technical forces 

Prices are under pressure on the weekly charts, currently testing the 50-week SMA and bullish channel. A solid breakdown below the 2.0700 could signal further downside.

Zooming into the daily, there have been consistently lower lows and lower highs. Prices are trading below the 50, 100 and 200-day SMA while the MACD trades below zero.

• Sustained weakness below 2.0775 may open a path back towards 2.0500.

• Should prices push back above the 200-day SMA, this could open a path back to 2.0900.

Bloomberg FX model now forecasts a 76% chance that GBPNZD will trade within the 2.0510 – 2.0924 range through next week.