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The British Pound is consolidating against the New Zealand Dollar as markets await fresh data and developments.
The consolidation we have seen over the past couple of weeks actually forms an interesting setup on the daily chart called a pennant pattern:
The pattern resembles a pennant - or flag - and technical analysts describe it as a consolidation period ahead of an impending breakout.
The theory shows that when the pennant forms during a long-term uptrend, the resolution should be to the upside:
GBPNZD is in a multi-year rally, having achieved the highest level since 2016 of 2.24, with the 2025 decline representing a pullback in the trend and not a reversal.
If the pennant pattern plays out, as per the textbook, the coming weeks would see the rally resume towards new multi-year highs.
However, for the coming days, it looks as though the pennant can get a little bigger amidst further NZD resilience.
The New Zealand Dollar strengthened last week after the Reserve Bank of New Zealand (RBNZ) cut interest rates and appeared to signal it might be the final 50 basis point interest rate cut as it approaches a pause in the cutting cycle.
"With the OCR now much closer to neutral and the economy recovering slowly, we expect a more cautious RBNZ from here. Our view is that this is likely the last 50bps cut. For now, we look for a further 75bps of rate cuts in clips of 25bps for the rest of this year, taking the OCR to 3.00% by 3Q25," says Lee Sue Ann, Economist at UOB.
Should this week's data land ahead of expectations, the market will become more confident the RBNZ is ready to slow down as it approaches a pause, which can help NZD and frustrate GBP/NZD upside:
- Q4 Retail Trade (Feb 24): Expected to rise by 0.7% q/q, indicating an improvement in consumer spending.
- ANZ Business Confidence (Feb 27): Confidence remains near a 10-year high, supported by lower interest rates.
- ANZ Consumer Confidence (Feb 28): Trending higher due to improving economic conditions.
- January Monthly Employment Indicator (Feb 28): Expected to be flat, indicating a stabilisation in labour market conditions.
The recent sideways drift in GBP/NZD also speaks of easing volatility levels in global FX, a testament to the waning impact of U.S. President Donald Trump's tariff proclamations, which has helped risk-sensitive currencies such as NZD.
The playbook heading into 2025 said that New Zealand was prone to weakness in the event of a tariff war, but Trump has since shown he is not interested in pursuing worst-case tariff scenarios.
For one, it looks as though he is going much easier on China, which, alongside Australia, is New Zealand's major trading partner and key vulnerability in the event of a tariff war.
Even if Trump talks tariffs this week, any negative impact on NZD should fade, capping GBPNZD upside in the process.
Nerves will build as April 01 approaches, when the U.S. will introduce tariffs that match the import duties other countries impose on U.S. goods.
On April 02, a 25% tariff on foreign cars, semiconductor chips and pharmaceuticals is expected to be announced.
Should the U.S. announce more far-reaching and severe tariffs, then NZD can come under pressure and an upside breakout in GBPNZD can evolve.