Pound-to-New Zealand Dollar Breakout Imminent as RBNZ Decision Looms

The pound-to-New Zealand dollar exchange rate has been under pressure in recent sessions, trading between its short-term average and support level. The RBNZ decision on Wednesday could prove pivotal, with a 25bp increase to 2.75% fully priced in the market.

The technical analysis suggests that the market is squeezed between its 21-day moving average above and the shelf that has caught every decline this month below. A break in either direction is likely, but two factors argue for a higher break: Friday's low at 2.2784 dipped beneath the shelf but then closed nearly a cent above it, leaving sellers with nothing to show; and the falling average above a market holding its ground can be cleared without any rally at all.

The dollar is in control of this cross, with GBP/NZD influenced by both GBP/USD and NZD/USD. A rising dollar knocks NZD/USD more than GBP/USD, causing GBP/NZD to rise as a result. The market expects another increase by year-end, with the overnight index swap curve implying a further 50bp taking the official cash rate to 3.50% by the middle of 2027.

ING and Westpac have differing views on the RBNZ's decision, with ING expecting a hike and Westpac anticipating two more 25bp increases this year. The RBNZ must verify expectations for NZD to stay still, any deviation sending the currency lower.