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Sterling's surge to multi-year highs against the kiwi looks set to extend, but pullback risks are building.
The Pound to New Zealand Dollar exchange rate surged to multi-year highs last week, and the setup favours further gains.
The pair is at 2.3625 and has cleared the 2.3544 ceiling that capped rallies in November 2025 and July 2026.
The setup is clearly bullish for sterling, and the risk is high that fresh highs are delivered this week.
The RSI is at 70, however, and the odds of a pullback are high.
Above: GBP/NZD at daily intervals with the 21-day moving average and the RSI in the lower panel.
This is a good time for those with New Zealand dollar buying exposure to book a purchase and cover a good proportion of that exposure.
Kiwi Weakness Has Run Far
"Across the G10, the Kiwi has been the worst performer," says ANZ.
ANZ expects the Reserve Bank of New Zealand to raise interest rates on 28 October.
"The NZD trade weighted index (TWI) is now at levels not seen since 2011. That will almost certainly play into the RBNZ's October decision later this month, at which we expect a hike," says ANZ.
Commerzbank argues the selloff has overshot: "For the time being, however, we believe that the weakness has gone somewhat too far. Another rate hike by the RBNZ should lend support to the kiwi through year-end."
Dollar weakness is the main opportunity for a New Zealand dollar recovery, owing to the currency's high beta to the US dollar.
The dollar faces positioning headwinds heading into Wednesday's US inflation data, and that can help high-beta currencies such as the kiwi.
Goldman Sachs forecasts NZD/USD rising to 0.62 in 12 months.
Sterling is still favoured over the medium term, but tactical weakness is likely, with a return to 2.3544 the first stop and the 21-day average at 2.3466 below.
