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The pound holds the technical advantage against the New Zealand dollar, but the RBNZ will have the final say this week.
It's advantage sterling in the technical stakes: the balance of probabilities continues to favour further gains for the pound-to-New Zealand dollar after the recent break above trendline resistance and move above key moving averages.
The pair has broken through a descending trendline that capped rallies throughout the spring before reclaiming both the 21-day moving average (2.3199) and the 100-day moving average (2.2929).
The rally has carried the pair back to the top of its established trading range, where it is once again testing major resistance around 2.3490-2.3554.
The key question for the week ahead is whether GBP/NZD can complete the range breakout and print new highs, or whether resistance proves reliable and triggers a pullback.
Here, weakness could extend back to 2.3199, the rising 21-day moving average and first dynamic support.
2.2929 follows, this is the 100-day moving average and important medium-term support.
The answer to the technical puzzle will be determined, in part, by the midweek Reserve Bank of New Zealand (RBNZ) interest rate decision and guidance.
How Will The RBNZ Influence the New Zealand Dollar This Week?
The RBNZ is the most important event in the New Zealand dollar's weekly calendar, where a 'hawkish' outcome would provide a boost.
To be sure, the market is already well positioned for a rate hike, meaning any decision to forgo a hike will provide something of a surprise.
In such a scenario, the NZD would come under pressure and we suspect GBP/NZD could eye a run to 2.3553 in the wake of such a situation.
That being said, the RBNZ won't have the stomach to test the market in such a manner, meaning it will be focused on its guidance regarding future policy moves, judging that it has work to do here.
The RBNZ has to contend with the fact the market sees nearly four hikes being delivered by next May.
That's significant and would be a curiously strong hiking cycle for an economy that's not exactly been flying over recent years.
Sure, inflation is uncomfortably high, but that's largely a function of global developments, and we suspect the RBNZ would worry that raising rates too fast would risk sending the economy backwards.
Therefore, there's ample scope for a 'dovish' hike from the RBNZ this week, which would, all else equal, weigh on the Kiwi dollar.
That being said, the recent weakness in the NZ Dollar suggests maybe the market already anticipates such an outcome. If that's so, there's a chance the foreign exchange market responds to the RBNZ with a 'buy the fact'.
Here, the GBP/NZD falls in response.
