Pound to New Zealand Dollar Week Ahead Forecast: Under Pressure as RBNZ Rate Hikes Build

  • GBP/NZD finding support at 50-day moving average
  • But, more broadly, technicals are breaking down
  • Advocating for further downside
  • NZD on top as markets raise bets for another RNBZ rate hike

Image © Adobe Stock

The New Zealand Dollar can stay an outperformer in global foreign exchange in the near term as investors position for another interest rate hike at the Reserve Bank of New Zealand (RBNZ).

In a world where investors expect interest rate cuts at the world's major central banks, the prospect of an RBNZ rate rise will offer the NZ Dollar support via the interest rates channel.

We reported last week that ANZ said it now expects the next move at the RBNZ to be a rate hike, following the stronger-than-expected labour market figures for the final quarter of 2024.

Since the data release, another 25bp RBNZ hike will now be 90% priced by May and priced by the market. Investors have pushed back the time of the expected first RBNZ rate cut to November.

"The best performing G10 currency over the past week and for this month as a whole has been the NZD," says Lee Hardman, FX Strategist at MUFG Bank Ltd.

"The main catalyst has been a hawkish repricing of RBNZ rate hike expectations. There has been building speculation that the RBNZ will extend their rate hike cycle," says Hardman.

Hardman explains that market participants are increasingly anticipating that the RBNZ’s monetary policy settings will diverge from those of other major G10 central banks as they move closer to cutting rates, which is providing a bullish catalyst for the NZD.

The RBNZ signalled at its last policy meeting in November that "if inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further".

However, there are potential pitfalls for the bullish NZD setup if it turns out the RBNZ won't hike interest rates.

"The stronger labour market and CPI reports for Q4 have since increased the risk of another hike, although we would question whether it is really necessary given the policy rate is already well into restrictive territory at 5.50%. It compares to the RBNZ’s own estimate of the neutral policy rate that was raised to 2.50% in November," says Hardman.

Above: GBP/NZD at daily intervals. Track GBP and NZD with your own custom rate alerts. Set Up Here

The recent developments nevertheless create a bearish setup for the Pound to New Zealand Dollar exchange rate, which has pulled back from 2024 highs at 2.09 to test 2.06 at the time of writing.

Support is now found at the 50-day moving average of 2.0497, which offered approximate support at Monday's open as the pair bounced 0.40% as the new week began.

The break below the 200-day MA last week nevertheless hints at a potential breakdown of the 2024 uptrend, and the coming days and weeks could see a gradual decline as a result.

The average directional index (ADX) - a trend indicator - has also turned lower and is now pointed lower, which suggests the pair is liable to extend lower over the near term.