As one of the most volatile GBP pairs with sizeable market movements, GBP/NZD offers the opportunity to potentially make high profits in a short period. Besides providing huge potential for speculation, GBP/NZD is also a great alternative for traders who want to diversify their trading of big pairs such as EUR/USD, GBP/USD, EUR/GBP, and USD/JPY.
To trade GBP/NZD:
- Learn about trading GBP/NZD and analyzing the market
- Select a broker and open a trading account
- Get a trading platform
- Devise a trading plan and risk management strategy
- Make a trade by opening, monitoring, and closing a position
GBP/NZD consists of two of the most traded currencies globally in terms of volume and value. Trading this pair opens up some hidden opportunities in the competitive forex market.
Currency Pair Chart and Profile
The GBP/NZD pair consists of the British pound and the New Zealand dollar. The British pound is among the world’s most expensive currencies, while the New Zealand dollar is often perceived as a proxy for Chinese growth. GBP/NZD is also referred to as the Pound Kiwi within the forex market.
The economies behind GBP/NZD
Britain is the world’s sixth-largest economy when measured according to nominal GDP. The service sector contributes around 80% of the GDP, but the steel, oil and gas, tourism, and transport equipment sectors also contribute significantly to the economy.
Britain is one of the biggest exporters and importers in the world. It’s interesting to note that despite oil and gas production boosting the British economy, Britain is still a large importer of oil. The Bank of England is the central bank behind Britain’s monetary policy.
Although New Zealand’s economy is developed, it is relatively small in the global marketplace. It is the 52nd-largest economy in the world when measured in terms of GDP. The economy has substantial dependence on commodity exports. As such, the New Zealand dollar is one of the popular commodity currencies.
The biggest exports to come from New Zealand include milk, wool, meat, fuels, transport machinery and equipment, and ores and metals. The economy also has strong service and tourism sectors. New Zealand Monetary policy is set and managed by the Reserve Bank of New Zealand. It’s worth noting that Britain and New Zealand have a long trade history.
What influences the movement of GBP/NZD?
The performance of GBP/NZD is influenced by several factors.
- The economic health of Britain and New Zealand. The movement of GBP/NZD depends on macroeconomic data on the British and New Zealand economies. When trading the pair, it’s worth paying attention to a wide range of economic factors such as inflation rates, interest rates, employment figures, GDP growth, and import and export data.
- The economic health of major trading partners. In addition to the economic health of Britain and New Zealand, it’s also a good idea to keep up with that of major trading partners as this will likely influence GBP/NZD. For example, the New Zealand dollar is heavily influenced by Australia’s economic condition as well as that of the U.S., China, and the Asia-Pacific area.
- Commodity prices. As one of the commodity currencies, the value of the New Zealand dollar is primarily affected by commodity prices, especially those of agricultural products. As a result, GBP/NZD tends to move in line with commodity prices.
Note: Since the New Zealand economy has a significant dependence on agricultural products, the value NZD is usually affected by weather conditions. For instance, the dollar will likely fall when long-term poor weather is forecast. This, in turn, will affect the value of GBP/NZD.
- Political events can heavily influence the pair. When trading the pair, it’s important to keep up with any significant political news or elections that could move the pound, and to a lesser extent, the New Zealand dollar.
Is GBP/NZD an exotic pair?
GBP is one of the pound crosses. As such, it’s a minor pair. A minor currency pair does not include the U.S dollar, but it does include any of the other seven major currencies.
Pros of trading GBP/NZD
GBP/NZD, because of its characteristics, has several inherent advantages.
- GBP/NZD respects long-term trends. This makes the pair an attractive option for trend traders.
- The pair provides considerable liquidity and volatility. Although the high volatility can increase risk, traders with robust volatility trading strategies can make significant profits.
- GBP/NZD is a fast-moving pair. You will likely spend less time waiting to close positions.
Cons of trading GBP/NZD
The major disadvantages of trading GBP/NZD include:
- The risk of wiping your capital. Due to the rapid changes in the value of GBP/NZD, trading without a stop loss or with too much leverage can wipe your account.
- Wider spreads. GBP/NZD is not a major pair,so its liquidity is lower relative to that of the majors. This means that it can be more expensive to trade.
The Best Time to Trade GBP/NZD
As one of the GBP pairs, GBP/NZD tends to experience the most market movement during the European session. However, it’s possible for the pair to see a flurry of activity during the Asian session as major market announcements cause NZD to experience high trading volumes.
Best Trading Strategies for GBP/NZD
GBP/NZD tends to have clear fluctuations where support and resistance levels can be determined easily. You can use these fluctuations to swing trade, i.e. use the support and resistance levels as market entry points.
However, there’s always the possibility that the price will break through either the range support or resistance to form new lows or highs. This presents an opportunity for breakout trading.
Note: You have to remember that not all breakouts result in new trends. Using a stop order can help you minimize your losses in case of a false breakout.
A carry trade encompasses borrowing a low-interest-rate currency to buy a higher-interest-rate currency. In doing this, the trader gains from the interest rate differential. Making substantial gains with carry trades usually depends on the successful usage of leverage to amplify the profits.
Since the New Zealand dollar is one of the highest-yielding currencies in the industrialized world, it has remained a top choice for carry trades. By shorting the pound and buying the New Zealand dollar, you can make a profit based on the difference between the two country’s interest rates.
GBP/NZD makes a good pair for trend trading because it tends to form long-term trends with clear periods of consolidation.
For example, using a trend line:
- In an uptrend, you could buy when the price pulls back then bounces up the trend.
- In a downtrend, you could sell when the price rises towards the trend line then pulls back.
While this chart looks at the longer-term trend, intraday traders can also capitalize on the trend to scalp GBP/NZD. The general idea is to trend in the direction of the trend. Scalping involves holding positions for short periods that can be as little as a few seconds.
GBP/NZD makes market moves that are similar to those of GBP/JPY and GBP/AUD. GBP/NZD is correlated to these pairs because both Australia and Japan are two of New Zealand’s leading trade partners. The economic performance of either country has a substantial impact on New Zealand’s.
The positive correlation of GBP/NZD to GBP/AUD
The positive correlation of GBP/NZD to GBP/JPY
Correlation of GBP/NZD with other instruments, commodities, or indices
Since New Zealand’s economy depends heavily on agricultural products and commodity exports, the country’s overall economic performance is linked to commodity prices. As a result, commodity prices tend to move in line with the value of the New Zealand dollar. For example, the New Zealand dollar has a strong correlation with gold prices and so GBP/NZD shows a negative correlation to gold prices.
What is the best time to trade GBP/JPY?
The ideal time to trade GBP/JPY is during the overlap of the Asian and European trading sessions. This is because the Japanese yen tends to see the most movement during the Asian session while the British pound is mostly traded during the European session.
The overlap is often characterized by more market activity and liquidity. You should also consider focusing your trades around key economic releases as these may have an impact on GBP/JPY.
Is GBP stronger than USD?
Historically, the British pound has been stronger than the U.S. dollar, i.e. one pound has been worth more than one dollar.
Note: When assessing the strength of a currency, it’s important to remember that the assessment should be done over a long time. Looking at a currency’s worth relative to that of another currency at a static point is meaningless. This is because each currency’s value is dynamic due to the many factors that influence the currency at any given time.
Is AUD stronger than NZD?
The Australian dollar is generally slightly stronger than the New Zealand dollar. The main reason behind the Australian dollar’s strength is that the size of Australia’s economy is bigger compared to that of New Zealand.
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