Why we're short on sterling-kiwi cross

Changes drive our lives. There are some turning points on any path you go. You can talk about complicated life conditions, unpredictable and uncomfortable circumstances, or even bad luck that guided you to this particular turn in your life. But the only thing that you can DO about it is to make a decision. A choice. What is the direction you go after this crossroad?

Changes drive the financial markets as well. We have a strong feeling, that we are facing a turning point during this period at the end of 2017 and beginning of 2018. It seems like we’re approaching to new huge trends formation in a lot of different assets. We cannot change these trends, but we can adopt to them.
One of the interesting assets for a mid-term trade is GBPNZD. Cross rates are usually lucrative in case if you choose the right side of the market. Please note, that we do not mean intraday trading or even one week perspective. We’re talking about 2-5 weeks range.

Fundamentally, the sterling stays in a consolidation range due to the same Brexit issue uncertainty, as British politicians like to repeat last 18 months. There are some negotiations between UK and EU scheduled for January, but traditionally all of the outcomes of such meetings turn negative for the pound. The economy is doing pretty well, but BoE seems to be interested to keep the pound at low levels. All of the latest comments from MPC officials ‘scream’ about this interest.

On the other part of the equation, there is a growing economy in New Zealand. Local consumption, employment and production has a strong and sustainable momentum. Plus the the external market conditions are favourable for this export oriented economy. Chinese production picks up, demanding more commodities, creating a bullish trend in prices. And the main change that happened in New Zealand recently, was the election of new Reserve Bank of New Zealand Governor. I quote here an official press-release posted on RBNZ: “Adrian Orr has been appointed as Reserve Bank Governor effective from 27 March 2018”.

The market players reacted with buys of the kiwi across the board on that news, because Adrian Orr is well known as a hawk. New cycle of tightening policy is expected from this new official, which means good perspective for NZD.

SS FX Management analyst team has a strong suggestion, that GBPNZD should continue bearish run based on this fundamental divergence. Technical background is illustrated below.

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