GBPNZD

A week from today we will finally have the “meaningful vote,” when UK’s parliament will decide whether to approve the Brexit deal which Prime Minister Theresa May negotiated with the European Union at the back end of last year.

The early indications suggest speculators are warming up to sterling, possibly on expectations that the Bank of England will hike interest rates for the first time since before the financial crisis.

The only notable market-moving data left for this week are retail sales from New Zealand (tonight) and Britain (tomorrow). Consequently, the GBP/NZD will be in focus.

The GBP/NZD is among the more interesting and VERY volatile GBP pairs to watch as we approach next Thursday’s EU referendum. It is not everyone’s cup of tea, but with appropriate position size and risk management, it could offer decent trading opportunities as it a technically-friendly pair. The reason we are looking at this pair today is twofold.

Concerns over the economic impact of the possibility of Britain leaving the EU have been a key theme weighing on the pound this year. Last week however there was relief as the “remain” camp edged higher in some polls. Meanwhile bets that Britain will remain in the EU surged higher last week and the odds of Brexit were slashed. It looks like US President Barack Obama’s intervention in the debate has had a big impact. As the odds of Brexit have been slashed so too have short positions in the pound, for there was nothing else constructive last week to support the currency as the latest employment and retail sales figures both disappointed expectations. This week’s key data for the UK is the first quarter GDP reading on Wednesday morning. Economic growth is expected to have eased to 0.4% from 0.6% in Q4 of last year.

It is going to be a big day for the UK assets with the budget due for release shortly and after this morning’s slightly stronger than expected jobs and wages data. Although Chancellor George Osborne is expected to announce few surprises at this budget, certain stocks and/or sectors will be impacted in one way or the other. The pound is also likely to turn volatile should Mr Osborne deliver a surprisingly cautious or surprisingly optimistic economic policy updates. But according to the latest ONS data, the UK economy is not doing too badly for the number of people claiming unemployment-related benefits has dropped to the lowest level since April 1975. Added to this, wages are continuing to grow, with earnings including bonuses rising by an above-forecast 2.1% year-over-year in the three months to January, compared to 1.9% previously. It could also be that Brexit risks are overstated, although as my colleague Matt Weller highlighted yesterday, a Telegraph’s poll suggests that there is a clear enthusiasm gap in favour of leaving the EU. But today, traders are likely to put Brexit fears on the backburner and instead concentrate on the budget and then the FOMC statement/press conference later in the day.

There’s been so much said about a UK referendum on whether to remain a member of the EU and the corresponding moves in the pound. I imagine some of you are beginning to feel sick of hearing the word “Brexit” by now. So you would naturally think I would write about something else here today. Wrong.

This week’s sheer number of top-tier economic data from the UK economy means the focus will be on sterling, which has been pounded recently because of receding expectations about a Bank of England rate rise this year. In fact, as my colleague Matt Weller reported earlier, contrary to economists’ expectations of a rate rise, traders have actually started to expect a rate cut as the more likely scenario. Their conviction is only likely to grow should this week’s UK macroeconomic data disappoint expectations. Indeed, given the current sentiment and the so-called “Brexit” risks, it would probably require some significantly stronger data to change the market’s perception, which appears unlikely. So, while there is a possibility for a respite in the selling pressure, things could go from bad to worse for the pound, especially against currencies where the central bank is more hawkish, such the Australian and New Zealand dollars. Both the RBA and RBNZ appear content with the recent weakness of their respective currencies and also the current level of interest rates. In New Zeeland, interest rates are significantly higher at 2.5% than most other developed nations. The GBP/NZD could therefore weaken a lot further over the long term outlook if the disparity between the RBNZ and BoE’s policies grow. In the very short-term outlook, the GBP/NZD could also suffer if (1) UK’s data disappoints and/or (2) macro pointers from New Zealand beat expectations this week. Otherwise, a short-term relief rally could be on the cards.