The general economic backdrop seems to support a resumption of the down trend soon. Risk sentiment is improving again after the Dubai "blip", and the Reserve Bank of Australia has just raised interest rates for a third successive month. A tightening cycle is already well underway there, and is likely to become a reality in New Zealand some time before the UK, who are expected to keep rates on hold at the Bank of England meeting this Thursday.

The technical outlook is still precarious. Sterling has been in mild recovery mode since October, but the rally is looking fragile, and a break below the November low at 2.23 would be enough for us to target a return to the 2.13 lows.

Despite this relative underperformance by NZD, we are still feeling very cautious on the GBP/NZD exchange rate. Share prices have rallied to new highs after last week's correction, helping the highs yielding currencies gain ground. Gold continues to soar to new all time highs on an almost daily basis, now trading at $1,168 per ounce, up 7% from when we sent our last report. If risk appetite holds up, we expect the Kiwi to strengthen again.

We've had a very mixed bag of data for the pound over the last week. Public sector borrowing was far higher than expected for October (£11bn versus £7bn expected) and traders are still concerned that further quantitative easing may lie ahead after last week's Bank of England minutes revealed that one MPC member voted for a £40bn increase. On the plus side, inflation for October was a healthy 1.5%, and we are expecting a slight upward revision to the preliminary estimate of third quarter GDP tomorrow.

The technical outlook remains negative, but would improve if we could just break above the early November highs around 2.3125. That would at least disrupt the series of "lower highs" that has dominated the chart for the last eight months. Our advice is to cover at least half of any NZD requirement at current levels to reduce risk, and take a "wait and see" approach on the balance. Clients should also consider using a stop order to protect against renewed downside.

Sterling was marching steadily higher through mid October until we hit a major stumbling block on Friday 23rd. Third quarter growth figures didn't show any growth at all. In fact the economy contracted by 0.4% instead of the 0.2% expansion that analysts were expecting. That prompted a vicious sell off, sending the pound two cents lower almost immediately. Last week was somewhat better as the stock markets finally entered correction territory, sending investors scurrying away from high yield currencies like the New Zealand dollar, and into more defensive plays including the dollar and pound. By Thursday/Friday the previous week's growth shocker was looking more like a minor blip as sterling rallied back to the levels it was trading at the start of October. Much now depends on the Bank of England meeting this Thursday (November 5th). It seems to have come around very quickly after they elected to keep interest rates and quantitative easing on hold in October. Another "no change" vote would certainly help sterling's cause this week, especially if the subsequent meeting minutes (usually released a few days later) show another 9-0 vote.

The technical outlook remains negative, although we are seeing some "green shoots" for the pound. The last two weeks' rally is too little to say the trend has changed. For that we would need to see a sustained improvement or signs of a real base being built. At the moment we have to view this bounce as a correction, and accordingly our advice is for NZD buyers to cover at least half of any requirement now while the exchange rate is trading over fifteen cents (or 7%) off the recent lows.

The recent interest rate hike by the Reserve Bank of Australia took the markets by surprise, helping AUD and NZD march ever higher against a generally lacklustre pound. Gold continues to trade close to all time highs. Set against those tailwinds Australia had a higher than expected trade deficit in August, but jobs data for September showed a dip in unemployment. On balance, mostly positive for AUD, and that sentiment is rubbing off on the Kiwi, which reached a high of 2.13 last week.

Sterling enjoyed a strong rally into the end of last week after bullish comments from Bank of England policy maker Paul Fisher noting that quantitative easing is working well. The scene was already set for some sort of rebound after better than expected UK jobless figures, but the Fisher comments sparked a full blown "short squeeze" developed over the course on Thursday morning. A short squeeze happens when speculators who have sold the pound in expectation of further declines are forced to re-buy the currency to close their bets and stem losses. This situation can develop with little warning when large numbers of traders are caught "offside" when a market turns unexpectedly. The rebound looks to have run its course now, at least against the commodity currencies which are fighting back this morning against a backdrop of higher oil prices.

There is still some debate over whether the Bank of England may extend so called "QE" at the November meeting, but traders will be focussing on Wednesday's release of the October meeting minutes to get a real view of how that debate is looking inside the nine member Monetary Policy Committee.

The technical outlook is still negative. Today's chart includes a moving average which gives an idea of the trend (as if the price chart itself wasn't enough to determine that the trend is down!). We would need to see a lot more work by sterling to review our negative outlook.

The Reserve Bank of Australia raised interest rates yesterday in a surprise move. A quarter point hike puts the overnight rate at 3.25%, up from 3.0%. Analysts had widely expected no change, although there was an underlying impression that the RBA statement would include reference to possible future rate hikes. That move saw AUD rally fiercely as investors moved funds into the currency to take advantage of the higher yield. The New Zealand dollar also benefitted.

Sentiment towards the pound improved marginally as traders started to look forward to this month's Bank of England meeting this Thursday, with the all important quantitative easing package expected to remain on hold at £175bn; but that sentiment is overshadowed by the expectation that there may be an extension in November, leaving a cloud hanging over the market in the meantime. That may make it difficult for sterling to stage any sustainable rally in the short term. Data flow was mixed last week. The IMF upgraded its 2010 growth forecast for the UK (to 0.9% from 0.2%), but soft manufacturing data for September surprised to the downside as market watchers expected better figures off the back of higher exports. The CBI's retail sales figure was better than expected, and the final revision to Q2 GDP saw an improvement to - 0.6% from previously published -0.8%.

The commodity currencies have an extra tail wind this week. Gold is hitting all time highs (currently $1040 per ounce), and oil is also being dragged higher. That gives the NZD a further boost and is helping it make new highs against the pound this morning. In fact, the exchange rate is now trading at the lowest level since our records began in 1991, and there is no sign of a reversal coming.

Sterling plunged this morning, spooked by a series of negative news reports and comments from Bank of England governor Mervyn King saying that sterling weakness was "helpful" in rebalancing the UK economy. We have been hinting at the BoE's implicit approval of sterling's slide for the last few weeks, and now they have come right out and said it! That is unhelpful for the pound, which was just starting to gain a little traction yesterday following the release of the most recent BoE meeting minutes which showed that all nine members voted to keep the central bank's assets purchase programme (otherwise known as quantitative easing) on hold at £175bn. King's comments have overshadowed the relief rally that we saw yesterday, and sterling is now trading at its lowest level against the Aussie dollar since our charts begin in 1991.

The Sterling/Kiwi exchange rate is now testing all time lows (at least as far as our charts go back, circa 1991), and with Sterling/Aus' making breaking below its 1991 low today, there's no reason to think this market won't follow. We continue to advise clients to cover at least half of any NZD requirement now to avoid the risk of further downside.

Things were starting to look better for Sterling late last week as the latest Bank of England decision reassured investors. The lack of any further quantitative easing ("QE") gave traders a reason to buy the pound for once. Unfortunately that reason was removed yesterday as BoE governor Mervyn King gave another gloomy update in his quarterly inflation report. Labelling the durability of the recovery as "highly uncertain", he indicated that further easing could be in the pipeline. Inflation figures for August were slightly higher than expected, but this failed to offset the comments.

Meanwhile, the New Zealand dollar has been capitalising on sterling's weakness and also received a further tailwind after the Reserve Bank of New Zealand kept interest rates on hold at 2.5% at the latest meeting. More significant than the decision itself was the removal of the phrase "the OCR [official cash rate] could still move lower over the coming quarters". That change put investors on notice that interest rates have probably bottomed out and that the next move could be up.

The technical outlook for sterling remains bleak. There is no noteworthy technical support until the 1996 lows at 2.2250, and unfortunately no sign that sterling's decline is coming to an end.

Sterling jumped yesterday after the Bank of England left interest rates unchanged at 0.5% and made no further increases to the quantitative easing programme. The pound has been on the back foot since last month's central bank meeting at which they raised QE from £125bn to £175bn. The minutes of that meeting showed that three of the nine strong committee actually voted for a larger increase, putting the markets on notice that further increases were likely. More QE means more money in the system, effectively devaluing the pound against its peers. Traders reacted with relief, bidding the pound higher in the short time since the noon announcement. We will have to wait a few days for publication of the minutes of today's meeting to show how last month's 6-3 skew may have changed.

Meanwhile, the New Zealand dollar has remained generally well bid as gold continues to flirt with the key $1,000 per ounce mark. Stock markets are also performing well, keeping investor risk appetite buoyant and supportive of high yielding currencies. Strong bank lending data from China also helped the Aussie and Kiwi dollars today. While sterling's technical outlook against the Euro and US dollar have improved on yesterday's bounce, the Sterling/Kiwi rate is still on shaky ground, with no clear sign that a low may now be in place. Clients with NZD requirements should remain cautious, and consider covering at least half at current levels.