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The British Pound is trending higher against the New Zealand Dollar, bolstered by recent tariff developments.
The Pound to New Zealand Dollar exchange rate (GBPNZD) entered a short-term uptrend last week after it broke above the 21-day exponential moving average, which advocates for further upside in the coming days.
GBPNZD received a boost on Monday and trades at 2.2157. NZD is proving particularly sensitive to news that the Trump administration decided to proceed with tariffs on Canada, Mexico and China at the weekend.
The tariffs will impair global growth and contribute to a downbeat investor sentiment at the start of February.
The NZD is highly sensitive to broader sentiment, meaning the tariff-inspired anxieties are weighing, and the clearest route forward for GBPNZD is higher.
"AUD/USD and NZD/USD slumped by around 2% in response to President Trump's trade war declaration.AUD and NZD are typically very sensitive to threats to the global economy and changes in investor risk appetite," says Joseph Capurso, Head of International Economics at Commonwealth Bank of Australia.
GBPUSD is meanwhile looking more resilient in the face of tariff threats, mainly because the UK actually runs a rare trade deficit in goods with the U.S.
GBP/USD resilience and NZD/USD weakness naturally translate into mechanical GBPNZD gains.
Yet, the GBPNZD's 0.70% daily advance on Monday is sizeable, and we expect some of these gains to be consolidated without fresh tariff developments.
However, Trump is clearly pushing forward with his tariff agenda and we expect more countries to be caught in the net and hopes for calm look optimistic at this stage.
"That President Trump has applied the tariffs without giving much time for negotiations suggests it may take a severe sell-off in US equities or US government bonds, or strong push-back from US business or consumers to encourage a negotiation over tariffs," says Capurso.
Given the heightened risks of the trade war theme running for longer, GBPNZD looks set to extend to 2024 highs close to 2.24 in the coming days and weeks.
"It is perhaps not the size of the trade levies that has caught markets wrong-footed, but both the hastiness at which they will be imposed and the speed of the retaliatory response from authorities in Canada and Mexico. We have on our hands a full-blown trade war and one that, worryingly, may have only just begun," says Matthew Ryan, Head of Market Strategy at Ebury.