Pound-New Zealand Dollar Support Around 1.96, 1.97 Likely if Sterling Unscathed by BoE

- GBP/NZD in pullback from 2.00 & looking to stabilise at 1.97
- As market mulls job recovery, implications for RBNZ outlook
- GBP/NZD supported further down at 1.96 into BoE decision

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• GBP/NZD reference rates at publication:
• Spot: 1.9707
• Bank transfers (indicative guide): 1.9017-1.9155
• Money transfer specialist rates (indicative): 1.9530-1.9569
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The Pound-to-New Zealand Dollar exchange rate has reversed course from one-year highs thus far in the new month but was looking to stabilise ahead of Thursday’s Bank of England (BoE) monetary policy decision, a likely key determinant of whether GBP/NZD can avert a slide below 1.96.

New Zealand’s Dollar remained the outperformer among the largest of major currencies at the mid-week milestone after a better-than-expected second-quarter job report provided further encouragement to currency traders wagering the Reserve Bank of New Zealand (RBNZ) could begin the process of normalising its monetary policy settings by raising its interest rate as soon as its August 18 policy decision.

Kiwi unemployment fell to pre-financial crisis lows around 4% last quarter as the economy continued to draw a line under 2020’s coronavirus-inspired contractions, Statistics New Zealand data showed Wednesday, pushing GBP/NZD to one-month lows while lifting NZD/USD near to two-month highs.

“The details, including a 0.9%/qtr rise in wages, prompted short dated swaps and bonds to selloff 10‑12bp and our ASB colleagues to bring forward rate hike expectations to have an October and November hike added to the August move, with the OCR at 1% for year end,” says Martin Whetton, a strategist at Commonwealth Bank of Australia.

Investors have bet and prices in various financial markets have increasingly implied over recent weeks that the RBNZ could be likely to lift its interest rate on August 18, as well as on a further two occasions before year-end, which would see the Kiwi cash rate lifted from 0.25% to 1%.

Above: Pound-to-New Zealand Dollar rate shown at daily intervals with Fibonacci retracements of 2021 rally as well as 55, 100 and 200-day moving-averages. 100-day average at 1.96 the next level of support beneath 1.97 and ahead of 1.9477.

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The Pound-to-New Zealand Dollar rate was left testing a double-barreled support level around 1.97 as a result, which coincides closely with its 55-day moving-average at 1.9711 and the 23.8% Fibonacci retracement of the 2021 rally at 1.9703.

“NZD/GBP’s dip below 0.50 last week was fleeting {GBP/NZD’s move above 2.00], but it’s not clear that this cross is in the clear yet,” says David Croy, a strategist at ANZ.

The market’s optimistic outlook has driven a rally in the influential NZD/USD rate, which tested its 55-day average at 0.7068 on Wednesday, despite that the RBNZ itself has said little if-anything to explicitly endorse the above referenced expectations and could yet disappoint them.

NZD/USD has a direct influence on GBP/NZD, which always closely reflects the relative performance of the former and the main Sterling exchange rate GBP/USD, though fortunately for the Pound; the Kiwi exchange rate may have been close to running out of road on Wednesday.

“Has broken above a two-week old 0.6880-0.7020 consolidation range, triggered by a very strong NZ jobs report. Technically, a bullish signal has been given, signalling a test of 0.7100 during the next day or two,” says Imre Speizer, head of NZ strategy at Westpac.

Above: NZD/USD shown at daily intervals with Fibonacci retracements of 2021 correction lower indicating possible areas of technical resistance along with 55, 100 and 200-day moving-averages overhead.

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Additional NZD/USD gains could push GBP/NZD into a foray below 1.97 over the coming days but New Zealand’s Dollar would need to overcome a hat-trick of noteworthy technical resistance barriers against the U.S. Dollar, located around 0.7100, in order to push GBP/NZD below 1.96.

The latter, if it happens at all, could take time and so leaves the short-term outlook for GBP/NZD hinged substantially on the impact that Thursday’s Bank of England monetary policy decision has on the main Sterling exchange rate GBP/USD.

A neutral-to-positive impact in GBP/USD following Thursday’s 12:00 decision could see the Pound-to-New Zealand Dollar rate finding its feet around 1.97, although if Sterling’s feathers were to be ruffled then GBP/NZD could find itself testing 1.96 and potentially be left at risk of a slip below there.

“For GBP to move in a meaningful way to the downside, the BoE probably needs to deliver a 8-0 vote for both no rate or QE target change, and leave open the possibility that negative rates have not been ruled out as a future option,” says Shahab Jalinoos, head of FX strategy at Credit Suisse.

“On the flipside, a hawkish surprise probably needs at least two 2 but likely 3 or more votes in favour of ending QE early, together with a more explicit message pointing to a 2022 rate hike,” Jalinoos adds.

Above: Pound-to-New Zealand Dollar rate shown at weekly intervals alongside main Sterling exchange rate GBP/USD. GBP/NZD sits atop of its 100-week moving-average.