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The Pound can retreat from its recent highs against the New Zealand Dollar in the coming two weeks.
The Pound to New Zealand Dollar (GBP/NZD) uptrend is strong and, as a result, any weakness is expected to be shallow.
But after some big moves higher already in December, a consolidative approach to GBP/NZD is warranted into year-end.
This puts the upside limits at 2.24, and any downside risks can be seen taking in 2.20.
We think GBP/NZD can fade to meet the near-term momentum indicator of the nine-day exponential moving average (EMA), located at 2.2102.
GBP/NZD has hugged the nine-day EMA for much of 2024 and we don't see why a divergence is warranted now.
The above chart shows the RSI reached oversold last week (a reading above 70) when GBP/NZD powered to its highest level since 2015 at 2.24. An easing RSI is underway and now advocates for a softening in price action.
Looking beyond the next few days, the uptrend is firmly intact and further gains are expected in 2024.
This as the New Zealand economy continues to cause anxieties for the Reserve Bank of New Zealand (RBNZ), which could cut by 50 basis points again as soon as February.
Also, Chinese data has failed to inspire, while Chinese authorities have offered little confidence with already mentioned stimulus measures.
NZD is considered a China proxy, and the softness in China is weighing.
Of course, the prospect of Trump tariffs on China in 2025 is not helping Chinese proxies such as NZD.
Week Ahead: USD Retreat Can Boost NZD
The U.S. Dollar's advance in December has been particularly detrimental to the Kiwi currency, which is lower against most of its G10 counterparts this month.
However, last Friday saw the USD pull back following the release of some softer-than-forecast PCE inflation data, that suggested 'peak hawkishness' in U.S. interest rate expectations might have been reached for 2025. It is the steady reduction in bets for the degree of Fed easing in 2025 that has bolstered the USD since October.
Last week the Fed said it would only cut rates twice in 2025, which bolstered the Dollar. But the USD's advance looks extended and we will require new top-tier data to provide fresh impetus.
That comes in 2025, meaning 'peak hawkishness' could also mean peak USD, which offers scope for the high-beta NZD to recover.
Market liquidity will be thin until early January, so what would typically be a small FX market move would be amplified by limited market anticipation.
That suggests swings in GBP/NZD cannot be ruled out in the coming two weeks, although extreme moves would be faded and will tend to mean-revert.
Year and month-end flows will also be a feature of proceedings for the coming days. These are technical rebalancing movements of currencies with no fundamental or technical drivers.
There is suspicion that this period will be USD-negative, which would automatically assist NZD across the board.
Again, such moves will likely be faded ahead of 2025's first major data prints.
An original version of this article can be viewed at Pound Sterling Live