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GBP/NZD is rising, but risks a short-term pause on overbought conditions.
The British Pound staged a classic breakout against the New Zealand Dollar this week, although near-term momentum could fade owing to overbought conditions.
The Pound to New Zealand Dollar exchange rate (GBP/NZD) rose to a new four-month high at 2.2885 on Friday, following an impressive run of ten successive daily gains.
"Sterling remains well-supported," says Shaun Osborne, Chief Strategist at Scotiabank, noting that Thursday's GDP print revealed "the UK was the top-performing economy in the G7."
The GBP/NZD rally delivers a break through the multi-month range ceiling at 2.2781, and a weekly close above here opens the door to higher ranges and a test of 2025 highs near 2.32.
The Relative Strength Index (RSI) daily chart is, however, above 70 and is therefore signalling overbought conditions. We would anticipate the RSI to mean revert to below 70 shortly, which would require spot to either enter a period of consolidation, or retrace some of the recent gains.
Gains for Sterling follow a recent reapraisal of how many more interest rates the Bank of England can realisticly deliver without stoking inflation.
Last Thursday's decision to cut rates, but signal growing caution with regards to future cuts, ignited a rally in the Pound against most of its peers, including the New Zealand Dollar.
Those gains were accentuated by Thursday's GDP data, while the New Zealand Dollar seemed to be one of the biggest casualties following the release of U.S. PPI inflation data.
The data showed growing price pressures in the U.S., which spooked investors somewhat and helped the Dollar higher.
The New Zealand Dollar is highly sensitive to sentiment, and proved particularly sensitive to the Dollar's rally.