Pound to New Zealand Dollar Week Ahead Forecast: Heavily Overbought into UK Data Risk

Economic

Summary:

The Pound to New Zealand Dollar exchange rate can deliver more gains in the coming week, but beware of overbought conditions and any pullback if UK wage and inflation figures undershoot midweek.

The New Zealand Dollar is under pressure at the start of the new week following another domestic data set that will bolster the odds of a Reserve Bank of New Zealand interest rate cut before the year ends.

Kiwi house prices declined markedly in June, according to REINZ house sales. The house price index printed -0.1% month-on-month, bringing the annual figure down to +1.3% y/y from 2.3% previously.

This was after house sales fell 16.7% m/m in June, taking the annual change in turnover down to -25.6% from a positive 6.8% previously.

"Slow momentum in the housing market since last year's election, combined with the RBNZ’s 'tough love' message of keeping interest rates high for longer were the key factors," says Michael Gordon, Senior Economist at Westpac.

These housing data are the latest to make the case for an interest rate cut at the RBNZ, which is weighing on the NZ Dollar more broadly.

Last week the RBNZ performed what analysts described as a 'pivot' by signalling it now sees an interest rate cut as appropriate in the coming months. It said it expects "headline inflation to return to within the 1 to 3 per cent target range in the second half of this year."

It added that restrictive monetary policy (i.e. elevated interest rates) "will be tempered over time consistent with the expected decline in inflation pressures."

NZD weakness and broader GBP outperformance is clearly visible in a rallying GBP/NZD exchange rate, which last week recorded its strongest one-week gain since May of 2023. Gains extend into the new week and the pair is now quoted at 2.1295.

Momentum indicators are now suggesting some caution is warranted as the RSI is at 77.80, which is excessively overbought. In fact this is the most overbought the RSI has been in years.

Pound to New Zealand Dollar Week Ahead Forecast: Heavily Overbought into UK Data Risk_1

Above: GBP/NZD at daily intervals with the RSI in the lower panel.

We suggest a pullback is now warranted, although weakness is anticipated to be shallow. In the bigger picture, the pair trades above its key moving averages, and we see no incentive to stand in the way of the trend.

Following any near-term pullbacks, the next upside target is the 2023 peak at 2.1587, which can be attained in the coming two to four weeks. Near-term risks to GBP are relatively elevated as we have the release of inflation numbers on Wednesday, followed by wages on Thursday.

"We are still holding on to our call for an August rate cut, but another upside surprise for services inflation and/or wages would challenge our view and encourage a further strengthening of the GBP in the week ahead," says Lee Hardman, an analyst at MUFG Bank Ltd.

However, any undershoot against expectations can bolster the odds of an August 01 interest rate cut at the Bank of England and see GBP/NZD give back recent gains.

Services inflation is expected to read at 5.6% and headline CPI inflation is forecast to read at 2.0%. Any undershoot would raise the odds of an August 01 rate cut and send an overbought Pound-Euro sharply lower.

Analysts at Oxford Economics reckon the headline CPI inflation print will land at 1.8%, an outcome that would represent a decent undershoot and prompt a selloff in the Pound.

"Considering the GBP has been the best performing G-10 currency QTD, we think it remains prone to a larger correction if CPI print comes in lower than expectations," says Daragh Maher, Head of FX Strategy at HSBC.

The sell-off in the Pound would be limited because the Bank of England will find it difficult to cut aggressively if the economy continues to perform robustly, something a number of economists said was likely following last week's GDP release.

Regarding the wage numbers on Thursday, the expectation is for average weekly earnings to have increased 5.8% over the year to June. Anything below here would result in GBP selling.

Source: Poundsterlinglive

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JPMorgan

Economic

2024 started on a high note, with risk assets surging despite interest rate expectations evolving to reflect hotter-than-expected economic data. Second quarter moves were slightly different in nature: U.S. names largely outperformed the rest of world, bonds did little as rate expectations crystalized, gold continued to rally and digital assets took a dive.

What was behind these market moves? To understand them, it is important to unpack some of the things that helped to define the second quarter of 2024.

Economic data softened:U.S. GDP growth slowed much more than expected, to 1.4% annualized in 1Q. While this disappointment was driven by inventory and trade figures, consumption data also missed expectations. So far, 2Q consumption is shaping up similarly: weaker-than-expected retail sales in May (+0.1%) and April (-0.2%) have put a damper on growth expectations. Meanwhile, core inflation continued to ease, falling from 3.8% in March to 3.3% in June, and the unemployment rate ticked higher, with the June read marking the first print above 4.0% in 30 months. Outside of the U.S., most major developed market PMIs softened, though improvements are expected, and inflation is now at or around target in both Europe and Japan.

Central banks started easing, but not the Fed: While the Bank of Japan cautiously eyes another potential rate hike, the broader developed market easing cycle is now officially underway: the Bank of Canada and the European Central Bank both elected to lower policy rates by 25 bps, and the Bank of England signaled a willingness to follow suit. Meanwhile, the Federal Reserve published its second quarter Summary of Economic projections, including the “Dot Plot”; policy makers expect one interest rate cut this year, down from the three telegraphed at the March meeting. Speculative assets, like Bitcoin, struggled with this “higher-for-longer” narrative.

Global equity market performance narrowed: Against this macro backdrop, equity market gains were more concentrated, both within the U.S. and globally. Domestically, Small Cap and Value stocks lost their luster as investors flocked to Growth and Large Cap names, with the S&P 500 driven to multiple all-time-highs on robust first-quarter earnings from mega-cap tech companies. Internationally, emerging markets outperformed developed ones due to improving Chinese fundamentals and strong earnings in Taiwan and India. Conversely, French elections and a weakening Yen weighed on European and Japanese equities, respectively. In addition, lingering geopolitical anxiety helped to bolster gold prices.

All told, the second quarter was a busy one, as was to be expected given the stage that was set in the first quarter. Looking to the back half of the year and beyond, lingering geopolitical uncertainty and an upcoming U.S. presidential election, coupled with the divergence in performance across assets, underscores the importance of diversification in a fundamentally uncertain world.

The Quarter In Review: What Happened In 2Q 2024?_1

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Alex

Economic

Goldman Sachs GS.N aims to raise $2 billion in its first Asia Pacific-focused private equity fund, two people with knowledge of the bank's fundraising plan said, as it looks to deepen exposure to some of the world's fastest-growing economies.

The fund-raising effort comes as private equity firms in Asia reshape investment strategies and country allocations amid geopolitical tension, a higher interest rate environment, market volatility, and macroeconomic headwinds.

Goldman Sachs Asset Management, the bank's investment arm, has been marketing the new fund to sovereign wealth funds, pension funds and private investors, setting its sights on a first close by the fourth quarter, the sources said.

The fund, whose target size is being reported for the first time, will focus primarily on investment opportunities in Japan, with about half its capital expected to be allocated to there, one of the sources said.

India, South Korea, and Australia will also be key markets for the fund, the source said.

Both sources sought anonymity as they were not authorised to speak to the media.

A spokesperson for Goldman declined to comment.

In the first half of 2024, Asia-focused private equity fundraising was up 4% on the year at $52.7 billion, but still a far cry from the first-half average in the past decade of $131.7 billion, says industry data provider Preqin.

Global investors have been particularly cautious about deploying capital in China, deterred by its economic slowdown, regulatory crackdown and Sino-U.S. tension, which have all weighed on Asia fundraising by global private equity firms.

Only five China-focused private equity funds were raised in the first half this year, totalling $2.2 billion, Preqin data showed.

On the other hand, Japan has become a hot spot for private equity firms as a cheap yen currency, buoyant public market and policy drives to improve corporate governance make its stocks and assets more attractive.

Japan's benchmark Nikkei .N225 racked up its biggest absolute rise ever for the year ended March 29, after having hit record levels since February. It is up 23% this year.

Private equity-backed mergers and acquisitions in Japan stood at a record $35.5 billion in 2023, after their numbers rose steadily in the preceding decade, LSEG data showed.

Stephanie Hui, Goldman's head of Asia private equity and global co-head of growth equity, told an Australian paper in March the firm was looking to raise an Asia-focused vehicle, and planned to increase investments in Japan and India.

One of the sources told Reuters that Goldman, which manages more than $90 billion in private equity assets globally, including buyouts and growth investments, would also continue to look at opportunities in China.

The Wall Street bank's 18-strong Asia private equity team, led by Hong Kong-based Hui, has deployed $17 billion across 242 investments in the region, its website says.

In February Chief Executive David Solomon said Goldman would raise its ninth global private equity fund this year. The bank has been in the private equity business for more than 30 years.

Since Solomon took the reins in 2019, the bank has been reducing use of its own balance sheet in asset management, by tapping external capital for investments, aiming to boost earnings from fees.

Over the last five years, the bank has invested in more than 60 companies in Asia, such as Japan's Nippo Corp and Chinese software company Shenzhen Qianhai 4Paradigm Data Technology Co, Dealogic data showed.

Goldman was also among the earliest investors in China's e-commerce giant Alibaba Group in 1999, before it became the nation's major online shopping marketplace.

Source:Reuters

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Cohen

Economic

Commodity

China’s natural gas production increased by 6% in the first half of the year compared to the same period a year earlier as state companies are boosting domestic output with new field start-ups.

Chinese natural gas production stood at 123.6 billion cubic meters (bcm) in January to June, up by 6% year-over-year, per data by China’s National Bureau of Statistics (NBS) released on Monday.

In June alone, China’s natural gas production jumped by 9.6% compared to the same month of 2023, according to the official statistics data reported by the Xinhua news agency.

Earlier this year, for example, state energy giant Sinopec started production at a natural gas field that has an annual capacity estimated at 2 billion cubic meters. The field, located in the province of Sichuan, has reserves estimated at around 100 billion cubic meters, which makes it an important contributor to China’s domestic natural gas output, Sinopec said in March.

Apart from raising domestic output, China is boosting natural gas imports this year to meet rising demand with LNG at lower prices than in the past two years.

China’s imports of natural gas, including via pipeline and LNG cargoes, rose by 14.3% in the first half of 2024 compared to the same period of last year.

Despite the higher volumes of imported gas, the Chinese import bill for the first half fell by 0.8% to $31.7 billion, as LNG prices were lower than year-ago levels early this year.

China boosted its natural gas imports in the period January to April, as it looked to stockpile fuel for the power plants ahead of the summer amid international prices that were half last year’s levels in the first four months of 2024. Chinese imports of natural gas were estimated to have jumped by 21% between January and April compared to a year earlier.

China could beat its 2021 all-time high of LNG imports this year, as industrial and commercial sectors are set to drive demand for the super-chilled fuel, an official at state-held energy giant PetroChina said in May.

Source:Oilprice

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Samantha Luan

Economic

Forex

At the time of writing, GBP/EUR is trading at around €1.1907, virtually unchanged from this morning’s opening levels.

Euro (EUR) unmoved by industrial production data

The euro (EUR) is trading sideways against the majority of its peers this morning following the release of the latest industrial production data.

Industrial output in the Eurozone contracted by 0.6% in May, better than an expected decline of 1%.

Despite the data coming above forecasts, the release still printed at a three-month low, indicating some weakness in the Eurozone manufacturing sector.

However, the report did contain some positive elements. Energy production rebounded and production of non-durable consumer goods continued to rise. With the data painting a mixed picture, it has failed to move the euro decisively in either direction.

Meanwhile, dampening EUR sentiment is France’s current pollical landscape. With the country’s recent election resulting in a hung parliament, concerns of political gridlock in the Eurozone’s second-largest economy continue to weigh on the single currency.

Pound (GBP) holds steady despite minimal data

The pound (GBP) is holding steady against the majority of its peers this morning despite an absence of notable UK data.

After hitting multi-week highs against its counterparts last week, Sterling is enjoying some modest support through to this start of this week.

The pound’s upside came following a stronger UK GDP print, recent hawkish commentary from Bank of England (BoE) officials and hope of political stability in the UK following the Labour Party’s landslide election victory.

Pound euro exchange rate forecast: UK inflation in the spotlight

Looking ahead, the pound euro exchange rate could experience some volatility later this week following the publication the UK’s latest consumer price index.

Scheduled for release on Wednesday, core inflation is forecast to cool from 3.5% to 3.4% in June, while headline inflation is expected to remain at the Bank of England’s 2% target.

Should Wednesday’s release surprise to the downside and cool more than expected, this will likely ramp up BoE rate cut bets for August and could undermine Sterling sentiment in midweek trade.

Turning to the euro, scheduled for release on Tuesday, Germany’s latest ZEW economic sentiment index is expected to show a downturn in July and print at a three-month low.

Should the data match expectations and confirm a decline in morale in the Eurozone’s largest economy, the single currency could weaken against its peers.

Source:torfx

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Warren Takunda

Cryptocurrency

The price of Bitcoin has reclaimed ground above the $62,000 mark, and analysts say the worst of the selling could be over with German BTC sales over and Mt. Gox payments all but priced in.

Bitcoin has rallied 5.2% in the last 24 hours, bouncing off two-month lows of $53,500 on July 4, and is currently changing hands for $62,550, per TradingView data. Bitcoin Reclaims $62K, Analysts Say Worst Is ‘Likely Behind Us’_1

Bitcoin Reclaims $62K, Analysts Say Worst Is ‘Likely Behind Us’_1

The price of Bitcoin is holding above $62k for the first time since July 2.

Ben Simpson, the founder of crypto education platform Collective Shift told Cointelegraph that he believed Bitcoin’s “local bottom” had now been formed and believes BTC is now headed for an uptrend.

Simpson said the price of Bitcoin had been hammered by a deluge of “forced selling” — much of which stemmed from nearly $3 billion in sales from the German government and negative sentiment towards some $8.5 billion in Mt. Gox creditor repayments.

On July 12, when Bitcoin wavered around the $59,000 level, the Crypto Fear & Greed Index fell to its lowest level in 18 months, something Simpson said was at odds with a more fundamentals-based approach to the broader market environment.

“Generally, I just felt there was a very big mismatch between sentiment and fundamentals,” he said.

Moving forward, Simpson looked to several key catalysts as being bullish for Bitcoin’s price in the coming weeks and months.

“Jerome Powell is hinting towards potentially lowering rates at some point soon. We’ve also got the S&P 500 ripping to new highs amongst all of this as well as strong Bitcoin ETF inflows flowing back in.”

Just over $360 million in leveraged short positions on Bitcoin were liquidated as Bitcoin broke through the $62,000 mark, per Coinglass data cited by Apollo sats founder Thomas Fahrer in a July 15 post to X. Bitcoin Reclaims $62K, Analysts Say Worst Is ‘Likely Behind Us’_2

Bitcoin Reclaims $62K, Analysts Say Worst Is ‘Likely Behind Us’_2

Source: Thomas Fahrer

Similarly, eToro market analyst Josh Gilbert told Cointelegraph that the worst of Bitcoin’s price may be in the rearview mirror, citing Trump’s increased odds of clinching victory in the upcoming election as a key driver of positive price action in the coming months.

“We’ve seen weakness in the last few months, but I think the worst is likely behind us. Any short-term weakness is likely to be bought with this in mind, alongside the tailwind of an ETH ETF and, of course, a more pro-crypto US party potentially being elected.”

“The attack on former President Trump this week has positively impacted his reelection odds, with the former President’s pro-crypto stance lifting Bitcoin and crypto assets in the process,” Gilbert said.

Gilbert also noted that Trump and Republicans held a more friendly stance on crypto than Democrats.

“The closer we move to Trump potentially gaining his spot back in the White House, the higher we’re likely to see Bitcoin move,” he added.

A Bitcoin pump won’t happen overnight

Gustavo Schwenkler, director of Australian crypto exchange Cointree told Cointelegraph that the narrative around Mt. Gox creditors dumping their Bitcoin on the market had already been “processed and priced in” as of last week.

Schwenkler sees lower-than-expected inflation figures in the US and the suggestion of lowered rates as a strong catalysts for crypto markets moving forward.

“Inflation came out lower than expected and expectations that the Fed will start cutting rates got a boost. The market is now expecting first-rate cuts as soon as September,” he said.

Still, Schwenkler warned that any potential upward swing in the price of Bitcoin would likely not occur overnight.

“I also don’t think there’s going to be a lot of push for the price to go much higher in the short run. I think we will see BTC move around $55-65k at least until the Fed actually cuts rates.”

Mark Hiriart, the head of sales at crypto asset manager Zerocap, argues that despite Bitcoin breaking $62,000, it would need to flip the $60,000 resistance into support, meaning that the price would need to hold steady above the $60,000 mark for some time.

Additionally, he said Bitcoin would need to reclaim its key 50-day and 100-day simple moving averages before BTC could progress higher to $65,000 and beyond.

Meanwhile, Hiriart warned there could still be some adverse effects from the potential Mt. Gox Bitcoin repayments.

“With Mt. Gox’s creditors sitting on a ten-year profit, it would be naive to think there won’t be any profit taking,” he said.

“The question is how staggered are the distributions and what percentage of recipients want to cash in. I would suspect short-term pressure on the market to continue over the Summer months,” Hirairt added.

Source: Cointelegraph

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