GBPNZD Analysis (Jun, 2022) Gloomy Economic Forecasts
- Matthew Cheung
- Jun 22, 2022
- 3 min read
The UK economy was one of the first countries to open its borders, open shops and end the lockdown phases during the pandemic... this accompanied by the inflationary monetary and fiscal policy during this period has created an economic headache for the country.
Bloomberg has identified that the GBP/USD exchange rate is set to reach lows seen during the peak of the pandemic... suggesting a potentially bearish and recessionary sentiment.
There's no surprise then we've seen across the technology and economic reports bearish data across most GBP pairs...
Logikfx Technology Summary
The technology summary page overall has majority economic indicators showing bearish data, however, we're yet to see the currency strength meter show a strong conviction...
The following economic indicators are all showing bearish signs for the UK:
GDP differentials
Interest rate differentials
Hedge fund positions
However, generally we prefer to have ideas where the currency strength meter has a solid conviction, in this case we don't... so let's have a look why.
Macro Currency Strength Meter
The currency strength meter overall ingests data from various economic reports and creates an overall gauge to how bullish or bearish that data is.
What we've found is that overall in the past few weeks GBP data is starting to head downwards, but we're also seeing NZD data showing similar signs...
Potentially the global economies are starting to slow and a recession may be imminent, especially since in most countries were seeing stagflation, rising prices and low growth.
This combined with higher interest rates will see many consumers and business take a step back on risk.
GDP Differentials
The GDP differentials is starting to show very clear bearish signs for the UK.
The IMF have forecasted that the UK is starting to slow at an incredible pace, if the UK is to continue with this momentum we'll likely see the UK contract moving into the next few years.
What we can see is the differential the green line is getting very close to a bearish stance below zero...
Trade Analysis (Imports/Exports)
British Petroleum (BP) is a company we tend to analyse against the GBP as it's one of the UK's largest oil companies in the UK.
What we've seen is oil prices on a huge spike over the past few months causing fuel prices to rise consistently.
The past year of data actually shows a fairly positive correlation against the GBP/NZD exchange rate.
The sharp drop in BP suggests GBP may follow suit.
AstraZeneca (AZN) is one of the largest pharmaceutical companies in the UK and also one of the main distributors of the COVID-19 vaccine.
We've seen AZN sky rocket over the past year, which is no surprise considering the constant need for a vaccine to travel and repel the virus.
The correlation against GBP/NZD has seen a negative side as AZN rises, GBP/NZD falls...
In this case we can see the rise in AZN should correlate to a fall in GBP... however we'll need to consider all other factors in the analysis.
Gold is another commodity frequently used throughout the GBP analysis, what we've seen throughout the two prices is a clear inverse relationship.
When the prices of gold rise, the GBP tends to fall and vice versa.
Overall most the factors in the trade analysis are suggesting a downwards movement.
Interest Rate Differentials
The interest rate differentials are one of the main indicators which are showing increasing rates across the board. Both UK and New Zealand have started to increase rates...
However, New Zealand seem to have rates growing at a faster rate than UK.
This is bearish for GBP as there's more of an incentive to invest in NZD due to higher rates and appreciation on the currency.
Hedge Fund Sentiment
The hedge fund sentiment is one of the biggest swings we've seen in the data.
What we can see here is hedge funds have maintained their buying on GBP but have drastically increased their buying on NZD over taking the overall bullish positions.
This is a drastic change which suggests hedge funds think the NZD looks bullish from their point of view...
Price Analysis
Over the past year the price of GBPNZD has started to depreciate significantly...
Prices are currently at a yearly low however any bearish signs in this range are likely to see more sellers come through...
Definitely keep on the watch list and see what the hedge funds continue to do.
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