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The New Zealand dollar remains under pressure following last week's shock decision by the Reserve Bank of New Zealand to hold interest rates, and Pound Sterling Live's Week Ahead Forecast will not stand in the way.
The kiwi lost the interest rate support investors had bought it for when the RBNZ left its cash rate at 2.75% last Wednesday, against market pricing for a hike, and the Pound to New Zealand Dollar exchange rate starts the week at 2.3816, its highest level since 2015.
Momentum favours sterling on both near and medium-term views, with New Zealand's labour market figures and Saturday's general election the kiwi's main tests this week, while the pound has its own support from an expected Bank of England rate hike on Thursday.
From a technical perspective, GBP/NZD has broken above the 2.3668 line, shown in orange on the chart, that capped it through October, and the RSI in the lower panel shows momentum building without the pair yet becoming overbought:
GBP/NZD daily chart. Image © Pound Sterling Live, chart created with TradingView.
The pair rose as high as 2.3876 on Monday, extending a breakout that began when the RBNZ held its cash rate at 2.75% on 28 October.
The October ceiling at 2.3668 now serves as the first line of support, with the July high at 2.3544, the purple line, beneath it.
The RSI reads 67, just below the 70 threshold for overbought territory, which leaves room for further gains before conditions become stretched.
The 100-day moving average, the blue line, is rising steeply and sits at 2.3240, well below the market, confirming the strength of the uptrend.
We look for GBP/NZD to extend towards 2.40 this week, with dips towards 2.3668 likely to attract buyers. A daily close beneath 2.3668 would change Pound Sterling Live's near-term Pound to New Zealand Dollar forecast.
Further out, the second chart shows GBP/NZD at six-monthly intervals, with the pair climbing from its 2016 low near 1.70 and advancing steadily since 2023. That multi-year trend remains intact, and the 2015 peak above 2.50 is the next major landmark.
GBP/NZD at six-monthly intervals. Image © Pound Sterling Live, chart created with TradingView.
Pound Sterling Live's forecast of 19 October looked for fresh highs above 2.3668 in the weeks ahead, and the RBNZ's decision delivered them nine days later.
What the RBNZ Hold Means for the Kiwi
The RBNZ's Monetary Policy Committee voted 4-3 to hold, wrong-footing markets that had priced a hike to 3.00% as close to certain.
"The RBNZ delivered the biggest shock to markets outside of a crisis period in over 20 years this week by leaving the OCR unchanged," says Kelly Eckhold, Chief Economist NZ at Westpac, in the bank's Australia and New Zealand Weekly.
"The RBNZ delivered a massive dovish surprise, with a 4-3 vote in favour of holding the OCR at 2.75%," says Mark Smith, Senior Economist at ASB.
All seven members of the Monetary Policy Committee agreed further tightening is likely to be required, and Westpac expects a hike in December, although Eckhold adds, "we don't think the December hike is a done deal as the data will inform the next move."
The kiwi's weakness has meanwhile left the trade crowded: the New Zealand dollar remains the G10's biggest short, according to Crédit Agricole's positioning model, which leaves room for a sharp bounce should a catalyst emerge.
New Zealand's Jobs Data and Election Are the Kiwi's Tests
Third-quarter labour market figures are due on Wednesday, New Zealand time, with consensus looking for the unemployment rate to fall to 5.5% from 5.6%, employment to rise 0.4% on the quarter and private sector wage growth to slow to 0.5%. Under the playbook, a lower unemployment rate than expected would support the kiwi and revive December hike bets, while a weaker report would add to its losses.
Westpac sees jobs growth "gradually picking up momentum," potentially enough to tip the unemployment rate lower, though existing slack "will keep wage pressures subdued."
New Zealanders vote in a general election on Saturday 7 November, and Westpac expects a close race that "could impact on the RBNZ's mandate," a risk that would weigh on the kiwi should it lead to a less hawkish central bank.
Building permits on Tuesday and ANZ commodity prices on Wednesday are second-tier releases.
The Bank of England Adds to Sterling's Support
Economists expect the Bank of England to raise Bank Rate to 4.00% on Thursday, which would widen the gap between UK and New Zealand interest rates to 125 basis points while the RBNZ sits on hold.
Sterling would gain further should the Bank signal more increases to come, while a message that the hike is a one-off would slow the pair's advance.
With the RBNZ on hold, the kiwi still the market's favourite short and sterling's yield advantage set to widen, Pound Sterling Live's Pound to New Zealand Dollar forecast looks for the rally to extend towards 2.40 this week, inside a multi-year uptrend that remains firmly intact.
