Strong service PMI data keeps Pound stronger

The Pound’s rally against its rivals, including the commodity currencies such as the New Zealand dollar, in the past two weeks was mainly due to the market’s preconceived notion that the negative impact of hard-Brexit is already factored in the exchange rate.

On the contrary, the New Zealand dollar was weakened by a series of negative headlines stating that the currency’s rally is nearing exhaustion. The lackluster rise in the global dairy auction prices in the recent times also contributed to the Kiwi dollar’s weakness. Currently, the fundamental and technical factors indicate that the GBP/NZD rally is about to continue for a few more weeks.

On Thursday last week, the UK’s high court ruled in favour of pro-European Union group which had appealed against the government’s ability to invoke article 50 of the Lisbon Treaty, without Parliament’s approval. The UK government is expected to appeal against the ruling in the near future. Until then, the Sterling is expected to remain buoyant. Later that day, considering the unexpected strong performance of the UK’s economy, the Bank of England left the interest rates unchanged at 0.25%, during the monetary policy meeting. The analysts had given a 50/50 chance of a further cut in the interest rates.

Economy and Stock

The BoE also warned the citizens of the UK to be prepared for a period of sharp rise in inflation in 2017. The analysts construe the warning as a hint to the end of the rate cuts in the near-term.

The services PMI data announced by Markit Economics, again on Thursday last week, showed that the UK service sector grew in October. The services PMI reading of 54.5 was higher than the market’s expectation of 52.5, and above the September reading of 52.6.

In the case of New Zealand, the Central bank is expected to slash the benchmark rate during the monetary policy meeting to be held later this month. Such a scenario is expected to keep the New Zealand dollar under pressure.

Furthermore, the Institute of Economic Research warned that the victory of Trump in the US Presidential race would spell trouble to the New Zealand exporters. The narrowing lead gap between Hillary and Trump has raised alarms among New Zealand exporters of meat, dairy, wine, and other horticultural products to the USA. Based on the above discussed details, we anticipate a short-term appreciation of the Pound against the Kiwi currency.

The GBP/NZD currency pair is now trading firmly above the established support level of 1.6980. The rising stochastic oscillator indicates an increase in the Pound’s bullishness. So, we can hope the cross to hit the next resistance level of 1.7380.

On the basis of the above analysis, a currency trader can add the Pound to his portfolio and sell the New Zealand dollar. The long position in the GBP/NZD pair can be taken near 1.7000, with a stop loss order below 1.6850. The profit for the trade can be booked near 1.7350.

A binary trader can speculate on the uptrend of the GBP/NZD pair by investing in a one touch call option. The target level for the call option should be less than 1.7200. With an expiry date in the first week of December, the trader can hope for the contract to expire in the money.

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