Pound-to-New Zealand Dollar Week Ahead Forecast: Stabilising

🎯 GBP/NZD year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. Request your copy.

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Our Week Ahead Forecast modelling suggests we're in a stabilisation period for the pound to New Zealand dollar exchange rate (GBP/NZD).

From a rules-based perspective, for the near-term outlook to turn bullish, we'd want to see the nine-day moving average cross back above the 21-day.

That's yet to happen, despite recent stabilisation, and is why we think overall risks are still to the downside.

But for the coming days, further consolidative action is possible with the 2.25-2.27 area expected to attract price action.

The New Zealand dollar fell across the board last week after the Reserve Bank of New Zealand (RBNZ) struck a dovish tone at its policy update, where it left interest rates unchanged.

One crucial element of the RBNZ's policy updates is its own expectation for its policy rate, i.e. where it predicts the OCR will move in the coming months; it left that prediction largely unchanged in February.

This means it does not agree with a market that sees interest rates rising in the second half of the year.

Part of the reason NZD has been rallying so aggressively this year has to do with its close ties with Australia. Here, the Aussie dollar has been on a tear thanks to the decision by the Reserve Bank of Australia (RBA) to raise interest rates.

Traders might have been guilty of drawing too close a parallel between Australia and New Zealand, leaving the NZ dollar exposed to disappointment, which the RBNZ duly delivered.

"The market was anticipating a more hawkish adjustment higher in the policy forecast trajectory, but the RBNZ remained cautious on its eventual rate hike forecast, only raising odds slightly of a single rate hike this calendar year to about 50% probability of a single hike," says Saxo Bank.

🎯 GBP/NZD year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. Request your copy.

This lets the GBP/NZD stabilise, and should the broader GBP weakness we have seen over the course of February fade, then the pair could even start to appreciate in a more noticeable fashion.

However, we think it's far too early to take such a bet and think risk-reward favours taking action to protect against further downside.

Bear in mind that political risks will be elevated in the UK this week with Prime Minister Keir Starmer's Labour Party likely to lose to the Greens in a much-hyped by-election in Gorton and Denton this Thursday.

It's too soon for challengers to depose Starmer, but the event will serve as a reminder that political risk premium will be a feature of sterling exchange rates this year.

That should limit GBP/NZD recovery potential for now.