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PN: New Zealand Dollar Gains Ease, Pound Finds Support
 
The outlook for the NZ dollar has however improved somewhat on the observation that economic indicators are improving.

The New Zealand Dollar has recovered against the pound sterling after being hammered at the start of the week.

The GBP/NZD hit a best exchange rate of 2.5205 and has since receeded back to the 240 level.

Interestingly 2.40 was the resistance zone that has halted GBP/NZD gains three times in the July / August period - it now appears to be working as support.

This tell us that the spike following China's 'Black Monday' has shifted this market in favour of sterling:

The NZD has benefited from a positive Reserve Bank of New Zealand (RBNZ) 2-Year Inflation Expectation for the third quarter, with a forecast of 1.94%, up from the previous prediction of 1.85%.

However, the GBP is well placed to bounce back against the NZD this week owing to the longer-term uptrend that still remains relevant.

New Zealand Economic Outlook Improves

However, gains in New Zealand’s economy could see the NZD, once again, standing strong against the GBP in the near term.

The Bank of New Zealand’s (BNZ) August 26 Economy Watch note offers deeper insights to the NZD’s unexpected rise from Monday’s tumble.

Although the NZD $649m merchandise trade deficit was near expectations, the exports and imports figures surpassed expectations, by NZD $400m each; certainly supportive factors of economic activity.

Several export categories saw a double digit gain over a year ago: fruit, up 50%; wool, up 25% and fish, up 23% for an overall increase of 14%.

Through these figures, BNZ anticipates positive export growth over the next 12 months.

BNZ July’s import figures were boosted by aircraft (NZD $378m).

Overall, imports were solid after the past year’s adjustment for the massive moves in oil prices and currency. Also, BNZ notes strength in machinery, plant equipment and consumption goods during the month.

Of course, this is only one month and a continuous upward trend over a longer period will be needed for a more definite conclusion.

Nonetheless, while July trade numbers are encouraging they are not enough for BNZ to change their forecast.

The annual current account deficit remains at 5% of GDP in 2015 to 6% through 2016, still less aggressive than RBNZ’s forecast for 7%.

Back to Normal for NZD/USD?

The Kiwi experienced substantial volatility to the upside against the US dollar, but remained relatively unchanged yesterday.

"The NZD/USD currency pair remains supported by a the lower Bollinger band, the monthly S1 and weekly S2 around 0.6450, which is likely to push the NZ Dollar further up today," says a note from Dukascopy Bank SA.

It is said that immediate resistance is located at 0.6533, namely the weekly S1, but will doubtfully have sufficient strength to hold the Kiwi from rising further, whereas the 20-day SMA is a more reliable mark.

"Technical indicators shifted from bearish to mixed, increasing the chances of the NZ Dollar outperforming the Buck," say Dukascopy.

FX Markets Calm

GBP has been under-performing on the back of the equity sell-off, where the large weight of financial services in the UK economy typically weighs at times like these.

“Despite this sell-off, we still think EUR/GBP is far too high at current levels (again UK hard data should hold up) and we still see value in returning to long GBP/SEK positions,” say analysts at ING.

The strong 4% Wall Street gains overnight and the more subdued 2% gain on the Shanghai bourses this morning has created a strong risk on tone.

Nervousness remains and renewed losses are certainly possible, even likely, at some stage but the bias is now towards recovery.

The dollar has rallied hard on the improving sentiment: EUR/USD is back at 1.1350, after having touched 1.17 earlier this week

A second Fed member, Dudley, has now suggested that the market turmoil might delay rate hikes. Futures are still predicting a 24% probability of a move in September.

Watch out for further Fed commentary at, or on the sidelines of, the Fed’s Jackson Hole symposium.

Source