Lack of clarity on the future trade relationship with the EU has turned the Pound weak against the New Zealand dollar. The weakness continued despite a 0.5% fall in dairy prices to $3,623 per ton, during the recent auction in New Zealand. The market expected the price of dairy products to decline, following a strong rise in the previous three auctions. So, the impact on the Kiwi dollar was minimal. Apart from the Brexit issue, as detailed below, the economic data from both countries indicate that the GBPNZD will also decline further from the current level of 1.9190.
The UK Office for National Statistics (ONS) lowered its fourth-quarter GDP growth estimate to 0.4%, from 0.5% growth predicted earlier. Analysts did not expect any revision in the GDP growth estimate. The annualized GDP growth rate was also downwardly revised to 1.7% in 2017, from 1.8% estimated earlier. In 2016, the annualised GDP growth rate was 1.9%.
The ONS also reported a lack of growth in business investment in the fourth quarter. The business investment remained flat between the October-December quarter (4Q17) and the July-September quarter (3Q17). On a q-o-q basis, economists were expecting a 0.5% increase in business investment in the fourth quarter. During the previous quarter, the UK economy recorded a 0.5% growth in business investment. While economic slowdown and Brexit uncertainty keep the Pound under pressure, the New Zealand dollar is expected to turn bullish on solid economic data.
According to Statistics New Zealand, during the quarter ended December, the total volume of retail sales grew 1.7%, compared with a 0.3% growth in the previous quarter. The reported figures also surpassed analysts’ expectation of a 1.4% growth in the fourth quarter.
Core retail sales grew 1.8% q-o-q in December, versus 0.7% growth anticipated by analysts, and greater than 0.6% growth recorded in the previous quarter.
Eleven of the 15 retail industries recorded higher sales volumes. Food and beverage services posted a 3.7% growth, following a 2.6% decline in the September 2017 quarter.
Similarly, motor-vehicles, and supermarket and grocery stores recorded solid growth of 2.1% and 1.4%, respectively, in December. With a 2.3% decline, accommodation registered the largest fall.
Overall, the total value of retail sales increased 1.9% (N$444 million). Therefore, economic data support a decline in the GBPNZD pair.
Technically, the price chart indicates resistance for the GBPNZD pair at 1.9190. The Williams’ Percentage Range indicator is moving towards the bearish zone. Furthermore, the currency cross is also moving along a descending trend line. Therefore, we are expecting the GBPNZD pair to decline further.
To benefit from the downtrend, we may go short in the GBPNZD pair near 1.9190, with a stop-loss order above 1.9310. We will book the profit when the currency pair falls to a level of about 1.8850.
In the binary market, we are planning to buy a put option. The option contract should be active until March 4th. We would open a position only if the GBPNZD pair is trading near 1.9190 in the spot Forex market.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
