GBP or NZD: which currency has potential?

GBP or NZD: which currency has potential?

2020-04-02 • Updated

These days it seems that all the financial news are orbited around the US dollar, it has a lock on everyone’s attention. However, there are some interesting cross-currency movements that you can gain from. Let’s have a look at GBP/NZD pair. It has shown the steep surge this week after its dramatic fall during March.

What’s happening with the British pound?

The pound recovered partly because of the Fed’s measures to provide more dollars to the global financial system. The demand for the USD has eased, and that has slowed the capital outflow from the UK. Moreover, the issue of Brexit is once again being cited as a factor driving Sterling. Most analysts believe that the British pound might get a boost if the United Kingdom and the European Union agree to extend Britain's post-Brexit transition.

On the other hand, we can’t say that the outlook for the GBP has become completely positive. Firstly, the UK's current coronavirus death toll indicates the country is on a worse trajectory than China, according to economists Pantheon Macroeconomics. The country recorded two worst-ever death tolls in a row on Tuesday and Wednesday, with 944 deaths from the virus in 48 hours. Secondly, although the Federal Reserve is doing its best to provide more dollars to those who seek the USD cash, the escalation of stress due to the further spreading of the disease may negate these efforts. If it happens, the market will rush back to the greenback and the GBP will be one of the currencies everyone will be selling.

What’s happening with the New Zealand dollar?

Sharp increases of confirmed coronavirus cases throughout the world have made the New Zealand dollar, the so-called ‘risky currency’, unfavorable. Moreover, its commodity heavy economy is also suffering amid a nationwide 'lockdown' and dependence on a robust world economy. Unlike with the GBP, we don’t have positive things to add to this equation.

Technical analysis

On the GBP/NZD chart below, we can notice three spikes during March, identified by the rectangles. Then there had been an upward trend since 23 March until it reached the 2.101 mark touching 50% Fibonacci retracement level. However, yesterday the chart reversed and plummeted. It may continue moving down toward the 2.065 mark lying on the support line. Also, if we have a look at the awesome oscillator below the GBP/NZD chart, we can assume that the chart will decline.

GBPNZD H4.png

Conclusion

If you want the diversification from the USD, it’s worth considering trading crosses. Among them, GBP/NZD is a good choice. We have examined fundamentals for both currencies and saw that the GBP is more resilient than the NZD. As a result, watch the marked support levels for reversal patterns and other bullish signals. Remember that the situation may change quickly and lead to big price swings, so be ready to react and open trades.

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