British pound rallied against the New Zealand dollar on Tuesday, as the markets are trying to price in risk appetite situation around the world.
GBP/NZD
British pound rallied a bit during the early part of the trading session on Tuesday, breaking above the 2.26 level against the New Zealand dollar. This pair has recently formed a little bit of a double bottom at the 2.24 level underneath.
Ultimately, this is a market that has recently tested major support and now looks as if it is trying to do everything it can to turn things around. If we can see this market break above the 2.28 level, then it opens up a big move. That could open up a move to the 2.34 level given enough time.
On the other hand, if we were to turn around and break down below the 2.24 level, then you could see a move down to the 2.22 level.
Market Volatility and Central Bank Policy
Ultimately, this is a market that, given enough time, I think will have to make a bigger decision, but it's probably going to be very volatile as the British pound, of course, is considered to be a safer currency than the New Zealand dollar.
The New Zealand dollar itself is going to continue to struggle and if that's going to be the case, then I think the market does eventually go higher. The risk off behavior, while it doesn't necessarily favor the British pound in general, what it does is make the New Zealand dollar extraordinarily weak and therefore, I believe that provides a little bit of a boost to this pair.
This is a pair that many retail traders ignore, but it is setting up for a potential move, and it is something worth watching. The Bank of England is expected to cut rates eventually, but the Central Bank in New Zealand has already admitted that they were going to do so.