Pound Hits the Brakes Against New Zealand Dollar After Blistering Climb

The British pound has seen its strong run against the NZ dollar pause. Is this the end?

The move higher was always likely to run in to trouble - as we reported earlier this week the move was looking extremely overbought on the charts and the market was becoming fatigued.

In these over-extended situations the amount of funds available to drive a continuation of a move simply dry up.

A pause is necessary to bring stability to the longer-term recovery.

We have heard anecdotal evidence from traders that some tidy profits have been made on the pullback in GBP-NZD as a result of this observation.

2.30 now appears to have made itself known as a resistance area which could well cap moves in the near-term:

We will watch price action over the course of the next week to establish where support is - once we have a support area we can start making assumptions about when the next leg higher will occur.

Our base case continues to ultimately favour further advances by the pound sterling against the New Zealand dollar though.

Be aware that all quotes in this piece are taken from the spot market and your bank will charge a discretionary spread when conducting international payments.

An independent FX provider will however get you closer to the market thereby delivering a better exchange rate, often this can result in up to 5% more FX being delivered, learn more.

Westpac Forecast NZD Weakness

Also maintaining a negative stance on the New Zealand currency are Westpac who have updated clients with their latest currency projections.

“We maintain our long-standing bearish outlook for NZD/USD. There’s potential for a corrective bounce during the weeks ahead, given it has fallen by 23% during the past year,” say the note.

Westpac are looking to view any strength in the NZD as opportunities to establish fresh short positions, (i.e fresh longs on the pound v New Zealand dollar exchange rate).

At the heart of the negative-NZD thesis is the RBNZ easing cycle which is expected to run further than the market has priced (we expect a terminal OCR of 2.75%, with a risk of 2.50%, but markets are at 2.80% currently).

“We target 0.6550 by September,” say Westpac regarding their NZD-USD strategy.

The data calendar for NZD is of moderate importance next week, with building permits and business confidence (both Tuesday), and QV house prices (Friday) on tap.

Of more interest to markets will be the dairy auction (Wednesday), and whether the previous small bounce in regular whole milk powder prices extends.