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The New Zealand Dollar is coming off a small run of outperformance against the Pound.
The Pound to New Zealand Dollar exchange rate (GBP/NZD) has fallen for four trading sessions in a row, dropping from 1.27 last Wednesday to 2.25 at the time of writing Monday.
The dip turns the near-term momentum models lower and points to building downside threats, which can persist in the coming days, particularly if sentiment towards China improves and markets ride the TACO trade higher.
That being said, we can't get too excited about the NZD's potential to push GBP/NZD too far, given the broader listless nature of the pair.
Zooming out, we can see no progress to the top or bottom has been made since April, and that this really is a consolidative play.
Our view is that the nine-day exponential moving average (EMA) - the touchstone of our Week Ahead Forecast modelling - is trending sideways, and will act like a magnet. This puts a return to 2.26 in play in the coming days as both the EMA and spot oscillate higher, before the gains fade and the exchange rate turns lower again.
Above: GBP/NZD at daily intervals.
The New Zealand Dollar is benefiting from some supportive global developments as we write: 1) the decisive rebound in U.S. equities, betraying improving global investor sentiment and 2) strong Chinese data, which means New Zealand's most important trade partner is proving to be a source of support again.
Data out Monday showed Chinese exports rose 5.8% y/y in June, after climbing 4.8% y/y in May, beating consensus expectations for growth of 5.0%.
"We believe the temporary tariff reprieve granted at the US-China emergency trade talks in London in May has given Chinese exporters some breathing space, with rising front-loading demand from US importers rushing to place orders ahead of the 12 August expiry, which was underscored by survey data recently. The stronger-than-expected external trade performance over the past three months is likely to support Q2 GDP growth," says Kelvin Lam, Senior China Economist at Pantheon Macroeconomics.
Evidence that China is riding out global tariff uncertainty will point to improving fundamentals for the NZD, which is particularly sensitive to Chinese economic growth and sentiment.
The currency is also sensitive to wider investor sentiment, usually expressed through the performance of the U.S. S&P 500 index, which has risen to new records again, suggesting investors are confident tariff wars won't be a lasting problem.
The new records come despite a ratcheting up in trade headlines: now that U.S. President Donald Trump has passed his One Big Beautiful Bill through Congress, he is free to push his trade agenda further.
Although tariff headlines don't make for friendly reading, the TACO trade (Trump Always Chickens Out) is in full swing, explaining why markets are riding the negative news to new highs. The trade describes how investors no longer fear Trump's tariff threats, instead expecting him to either push back the August 01 deadline or ultimately agree to deals with major trade partners.
The trade acknowledges that Trump is sensitive to the negative risks posed by tariffs on his own economy, which offers stocks some breathing space within which to climb.
For risk-sensitive currencies like the NZ Dollar, this is a supportive environment.
"We view the latest move from the White House as a negotiating tactic, and maintain our base case that the U.S. effective tariff rate will settle around 15%, which we believe will allow the S&P 500 to rise further over the coming 12 months," says Mark Haefele, Chief Investment Officer at UBS Global Wealth Management.
Risks to the view are that Trump doesn't extend the August 01 deadline and fewer trade accords are settled.
Here, a potential shock to markets could result, putting NZD back under pressure. But, the bottom line is that we are worlds away from the April 02 'liberation day' setup in which there was far more uncertainty around the matter.