New Zealand Dollar Week Ahead: High-Flying Kiwi Can Pressure Pound & Dollar

• GBPNZD eyes test of 2.0266
• NZDUSD: Westpac bullish this week
• RBA decision could cause blowback for NZD

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The New Zealand Dollar was last week's best-performing major currency and is the second-best performer of the past month, confirming it has some momentum behind it heading into the coming week.

This momentum is evident in an increasingly bearish Pound to New Zealand Dollar exchange rate (GBPNZD), where technical analysis suggests a test of the September-October lows is now at hand.

Last week, the pair broke below the 2.0577 support zone (the 23.6% Fibonacci retracement of the August-September selloff) and is now on track to test the larger support area at 2.0266:

Above: GBPNZD shown at daily intervals with the Fibonacci levels and 200-day Moving average denoted.

Note that the pair is also breaking below the 200-day moving average (the blue line in the chart) for the first time since March, which could amount to a significant technical development.

Should the exchange rate convincingly break below this level, the pair would enter a more protracted downtrend into the new year, raising the possibility that the key 2.0 level becomes a prospect.

The New Zealand to U.S. Dollar exchange rate (NZD) will be instrumental in how the broader NZD behaves, with any further upside here likely to pressure the likes of GBPNZD.

"A bout of USD weakness late in the NY session saw the already high-performing Kiwi close over 0.62, a feat it hasn't achieved in a little over four months," says David Croy, a strategist at ANZ.

"What we are witnessing in FX markets now really is an Antipodean show, with the USD and EUR both struggling as markets debate the timing of cuts, whereas the Aussie and Kiwi have the support of markets either calling for less-spirited cuts, or more hikes," he adds.

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"We remain bullish for the week ahead," says Imre Speizer, a strategist at Westpac in Auckland, regarding NZDUSD. "The technical break above the 0.6055 H&S neckline was sustained, with a textbook target of 0.6340."

Speizer says the rally in the New Zealand Dollar has been driven by U.S. developments, but last week's hawkish surprise from the RBNZ has bolstered the bullish case for the Kiwi.

"Tactically, we would buy on any corrective pullback to 0.6080, targeting 0.6250, with a stop loss at 0.6000," says Speizer.

There are no top-tier events from New Zealand this week, but we want to watch for any fallout from Tuesday's Reserve Bank of Australia policy decision.

The AUD and NZD can move in lockstep when major market-moving central bank decisions are made, and we expect this to be the case if the RBA does anything surprising.

To be sure, rates in Australia are likely to be kept on hold, but should the RBA strike a particularly 'dovish' tone, then AUD could unwind some of its recent strength, prompting a pullback in NZD.