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A USD bullrun looks to have hit NZD particularly hard.
The wind is behind the pound-to-New Zealand dollar exchange rate as the bulls have delivered a decisive breakout over the past fortnight, shifting the technical outlook firmly in sterling’s favour.
The pair has surged above its 100-day moving average near 2.2860, broken clear of the two-month consolidation range, and is now approaching the next major resistance around 2.3520, a level that capped rallies late last year.
The strong sequence of higher highs and higher lows suggests buyers remain firmly in control.
Momentum indicators reinforce the positive picture: the RSI has climbed into the high-60s, reflecting strong upside momentum without yet reaching deeply overbought territory.
While this leaves room for the rally to extend, it also suggests upside progress may become more measured as the pair approaches major resistance.
The 100-day moving average has now turned into an important support level; provided GBP/NZD remains above this area, the recent breakout should be viewed as genuine rather than a false move.
Any short-term pullbacks towards the 2.31-2.29 region are likely to attract renewed buying interest.
Risk to the Rally: A USD Setback
The acceleration in New Zealand dollar weakness looks to be closely aligned with the USD surge that's captured the FX market, confirming global conditions remain in charge of GBP/NZD.
The dollar has rallied by over 2.0% against its main counterparts since last Wednesday's FOMC decision, a win that's lasted six straight days but now looks primed to snap.
That USD strength looks to be having a disproportionate impact on NZD.
"Despite improving risk sentiment, the NZD is declining against the USD because broad dollar strength, (partly reflective of hawkish Fed repricing) is overwhelming risk-on tailwind, while weak NZ domestic fundamentals compound the pressure," says a note from ASB, the Auckland-based bank.
With the NZD/USD underperformance outpacing GBP/USD, the GBP/NZD cross must rise, and rise it has.
Given the importance of the dollar's advance, the obvious headwind to an extension of GBP/NZD's move higher is that USD strength fading.
We note in a piece published today that there are increasing signs that a turnaround in the USD's fortunes beckons; these include a crowded long USD trade and the prospect for the market to cool expectations that the Federal Reserve will raise interest rates again later this year.
