GBP/NZD Week Ahead Forecast: Shallow Pullback

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The Pound to New Zealand Dollar exchange rate is undergoing a period of consolidation, but the broader uptrend remains intact. This week's highlight is the Reserve Bank of New Zealand (RBNZ) decision.

From a technical perspective, Pound Sterling has pulled back from recent highs and is consolidating against the Kiwi.

The bigger picture, though, is that it remains in the ascendency: GBP/NZD recently broke above the 2.0940 technical resistance and retains upward momentum.

Strategists at Westpac say the next upside target is ~2.1276 and then ~2.16. Richard Franulovich, Head of FX Strategy at Westpac, says these targets could be possibly attained "within the next few weeks".

The analyst says yield spreads - which reflect central bank interest rates expectations - have been positive for GBP/NZD over the past month.

"The BoE has pivoted towards the potential for rate cuts, Governor Bailey noting recently: '...cuts are on the table'. But so too has the RBNZ, revising its OCR forecast in Feb downwards to show further rate hikes are
no longer the base case," says Franulovich.

Above: GBP/NZD at daily intervals. Track GBP/NZD with your own custom rate alerts. Set Up Here

That said, Westpac expects the New Zealand Dollar to turn around in the second half of the year, taking Pound-New Zealand Dollar back to the 2.0 level by year-end.

"That is because we expect market pricing of the RBNZ OCR to be disappointed, with no cut until Feb 2025. That is also the consensus among forecasting economists," says Franulovich.

The matter of RBNZ rate cuts will be in focus on Wednesday morning (UK time) when the central bank gives its latest policy update. Markets expect rates to remain unchanged, but the NZD could react to any shifts in guidance that may bring forward or push back on rate cut expectations.

"The focus will be on the RBNZ’s words/tone, which we don’t expect to change markedly. All of that suggests it’s likely to come and go without any fanfare. That said, we will be watching out for any comments on the exchange rate given recent weakness, especially in the face of higher oil prices and the rebound in NZ’s commodity prices," says Sharon Zollner, Chief Economist at ANZ.

Zollner says to watch for three things on Wednesday:

1. Any discussion on near-term inflation risks (monthly price indexes, the NZD, oil prices).
2. Any take on whether they think the upward surprise in consumption in Q4 was notable (we don’t think it was).
3. Any change to the language around the outlook for monetary policy

"We are expecting something extremely similar if not identical to the February line that 'interest rates need to remain at a restrictive level for a sustained period of time'," says Zollner.