Pound-to-New Zealand Dollar Week Ahead Forecast: Breakout Looms

Image © Adobe Stock

The pound is trying to bounce against the Kiwi.

The pound to New Zealand dollar exchange rate (GBP/NZD) is putting in a solid advance at the start of the new week, rising a third of a per cent on the day to 2.3113.

The advance carries it up to the convergence of the 21- and 55-day exponential moving averages (EMA), where it could well be blocked.

Casting our eye back to the past two weeks of action in GBP/NZD shows it has not advanced above the 21-day EMA at any point. And, it hasn't managed to record a daily close above the 55-day.

So there's a good layer of resistance here that could frustrate the pound's ability to build a recovery against the NZ Dollar.

We note that the pair is meanwhile finding buying interest at 2.2990 and 2.2965, which is the level of support that we would anticipate to hold up price action this week.

With solid support and resistance evident on the charts, there's a good chance we see more churn within the narrow range that lies between the aforementioned support and resistance levels.

So we have an increasingly constricted exchange rate that we think is looking to break out.

Do we think it will break out this week? Yes. Why? because there's a very busy week of data and event risk to look forward to:

1) Tuesday brings UK job numbers and the December PMI release
2) The all-important U.S. jobs report is also due Tuesday. This will impact global investor sentiment which is incredibly important for NZD. Here, any figure under 50K would trigger increased bets for more easing at the Fed which would boost markets and NZD.
3) UK inflation data will impact GBP/NZD. Any undershoot would send it lower as investors raise bets for further Bank of England rate cuts in 2026
4) Thursday brings the Bank of England itself into the frame as it delivers a 25 basis point interest rate cut. The guidance will me more important: if we get the sense it is ready to cut further, GBP will come under pressure.

The Kiwi data highlight this week is the release of New Zealand GDP data for the third quarter on Wednesday, where it should be confirmed the economy has returned to growth with a 0.9% q/q print, having suffered a -0.9% q/q reading in Q2.

Survey data suggests the economy is picking up momentum again, and confirmation in the official GDP statistics should solidify that view.

There's been a distinct shift in sentiment towards the NZD amongst investment bank strategists, with many now advocating 'long' NZD positions i.e. trades that are betting on NZD upside.

The tide turned in favour of the Kiwi dollar after the RBNZ announced a 25bp rate cut to 2.25% in November, but importantly delivered new guidance that no longer tilted towards further rate cuts.

Markets now see the next move at the RBNZ as a rate hike, which is bolstering the NZD.

"Economic activity is picking up, with lower interest rates encouraging household spending, while the labour market was stabilising and a lower NZD was supporting exporters; inflation risks are now seen as balanced, with a new upside risk identified, namely that the recovery could be faster and stronger than expected," says a note from Nomura.

Above: The market has raised the outlook for NZ interest rates, which has shifted NZD's fortunes.