Introduction to Currency Forecast
The pound to New Zealand dollar conversion (GBP/NZD) has been experiencing some fluctuations lately. On Friday, it fell by 0.60% due to the strength of the New Zealand dollar. This strength can be attributed to some positive survey data that suggests the New Zealand economy is turning a corner.
Factors Influencing the New Zealand Dollar
The New Zealand manufacturing PMI rose to 51.4 from an upwardly revised 50.1, indicating a recovery from prior weakness. Business NZ reports that four of the five sub-index values were in expansion during October, led by New Orders, which showed its highest level of expansion since August 2022. This growth lessens the odds of another rate cut at the central bank, providing support to New Zealand interest rates and the currency.
Current Market Trends
The near-term charts are relatively opaque, with the 21-day exponential moving average (EMA) offering some support. While above this level, the consolidative sideways tone can extend. However, the limits of this consolidation are the 2.33-2.34 zone, which is layering on some resistance, while dips to 2.31 won’t be a surprise.
Upcoming Events and Their Impact
On Wednesday, the UK will release inflation figures for October, with a reading of 3.6% expected, down from September’s 3.8%. This is consistent with disinflationary conditions setting in, opening the door to further Bank of England rate cuts. A steady lowering of the UK’s future interest rate path by investors has weighed on the pound of late, and it can come under further pressure if inflation surprises to the downside.
The Budget and Its Implications
Beyond the inflation numbers, sterling is shaky and will stay shaky right through to next Thursday, when the budget is finally announced. The market has been speculating about the budget, with a planned income tax hike suggested to be shelved. This caused some nervousness, but a series of counter-briefings were issued to steady market nerves. The bigger picture is worrying, with a government that lacks a coherent strategy rarely delivering positive outcomes.
Market Analysis and Expectations
The leaked decision not to go ahead with an income tax rate hike was perceived by some as a panic move. From the market’s perspective, the reliance on the ‘smorgasbord’ approach of raising revenue via a larger number of smaller tax bases can be seen as a potentially riskier route to generating the revenue needed to hit the fiscal target. Expect GBP/NZD rallies to be contained in this environment, and the easier direction of travel is lower.
Conclusion
In conclusion, the pound to New Zealand dollar conversion is expected to stay under pressure in the coming days. The UK’s inflation figures and budget announcement will be key events to watch. With the UK’s future interest rate path being lowered by investors and the government’s lack of a coherent strategy, the pound is likely to remain defensive. However, there’s still a chance that the pound rallies in relief into year-end as the uncertainty passes.
