GBP/NZD Golden Cross, two other bullish factors point higher, next correction a buying opportunity

Where is GBP/NZD heading next? In the short term, there is room for a downside correction, but the bigger picture remains to the upside. 

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Pound/kiwi is overbought, with the Relative Strength Index (RSI) on the daily chart above 70, implying a correction. It is essential to note that looking at the cross's recent past, this potential exit out of overbought territory will likely be short-lived. 

The bigger picture is of a bullish uptrend. GBP/NZD is not only trading above the 50, 100, and 200-day Simple Moving Averages (SMAs) but also enjoys another upbeat pattern. Earlier in the month, the 50-day SMA crossed above the 200-day SMA, which is the "Golden Cross" pattern, opening the door to additional gains. 

Since November, the cross has been trading alongside a consistent uptrend support line, occasionally running further up before correcting toward that line and resuming its gains. The current upswing to around 2.20 is one such move and a correction toward the line, currently at around 2.0090 might come before the next surge higher. The 2.0090 level was also a high point – near-perfect double-top in July and August 2021. 

Looking up, the next hurdle is 2.0290, which was the peak in July 2020. It is followed by 2.0440, a level that was in play earlier that year. Support below 2.0090 is at 1.9950, which provided support in early January. 

GBP/NZD Fundamental Analysis

On the fundamental side, central banks in both the UK and New Zealand have already begun raising interest rates. The interest rate in New Zealand is already at 0.75% and it is only 0.25% in Britain. While some may see that as a reason to buy the NZD and sell GBP, this gap is not significant enough to result in a carry trade.

Carry trade is the phenomenon where investors borrow pounds, convert them to kiwis and deposit the funds in New Zealand to benefit from higher interest rates. 

What moves markets in the cross at this point is speculation about further moves from both central banks, not current rates. There is probably limited room for the Reserve Bank of New Zealand to push rates higher, especially as New Zealand's export markets, led by China, are slowing down. In Britain, high inflation – driven by dearer imports of energy among other factors – means there is more room for hikes.

All in all, the fundamentals also point to a broad uptrend for GBP/NZD.