Pound-to-New Zealand Dollar Week Ahead Forecast: 2.2990 Favoured Target

A drastic policy shift at the RBNZ is playing into GBP/NZD downside. Image © Adobe Images.

Pound sterling is looking heavy against the New Zealand Dollar.

Following two consecutive weekly declines, we're sensing that the pound to New Zealand dollar exchange rate's long-running rally might have ended for the time being.

Having reached 2.3552 on November 25, it's been one-way action for GBP/NZD, which plumbed a low of 2.2990 last week.

That level - 2.2990 - is our favoured target for the coming week.

The forecast rests with evidence of growing downside momentum in the cross, with spot having sliced through the 55-day and 21-day exponential moving averages in the past fortnight.

This simply tells us momentum has flipped from the upside to the downside and that any gains are viewed as counter-trend relief-style rallies.

With this in mind, the 21-day EMA at 2.3129 is the initial upside target ahead of 2.3163 in the event of GBP/NZD ticking higher.

To the downside is that 2.2900 level we've already spoken about ahead of the October 29 low at 2.28.

Medium-term, it's still too early to say with definitive confidence that the GBP/NZD rally is done, and that this isn't a consolidative phase within that uptrend.

However, there's been a fundamental shift of late that would tend to favour NZD resilience over the coming months in the form of a drastic reappraisal of the travel in Kiwi interest rates.

Ahead of the RBNZ's November policy statement, markets were pricing in some chance of the OCR falling to 2% by the middle of 2026 and then a very gradual rising trend after that.

It has been the consistent decline in NZ's interest rates at the hands of the RBNZ that has pressured the currency lower.

However, the RBNZ signalled in November that the hurdle for further rate cuts is high, prompting market pricing to swing around sharply, to the extent that the next move is anticipated to be a hike.

The shift in expectations put a bid under the New Zealand dollar, which is now a favoured 'buy' target amongst a number of institutional strategists we follow.

"It's been an exciting time in New Zealand interest rate markets in the wake of the RBNZ's November policy meeting. Markets have responded to the RBNZ’s message that further OCR cuts are unlikely and pushed up short-term rates. That signals upward pressure on borrowing rates in both mortgage and wholesale markets," says Satish Ranchhod, Senior Economist at Westpac.

A hike in the RBNZ's OCR back to 2.50% is now fully priced in by the end of 2026, while the hiking cycle is seen extending into the following year.