The pound to New Zealand dollar rate is holding above the 1.96 mark, amid a continuing advance by the U.S. dollar, which could take the pound back to 2.00 should it weigh heavier on the Kiwi.

That said, market optimism in relation to the Reserve Bank of New Zealand interest rate policy could see GBP/NZD struggling to extend beyond that point.

On Tuesday, the New Zealand dollar declined to a year low as the USD advanced against other major currencies, driving the pound to a loss for the first time this year.

According to Kim Mundy, a strategist at Commonwealth Bank of Australia: “We still expect to see more NZD downside because we continue to expect the USD to increase in coming quarters. In addition, the Delta strain of Covid 19 is spreading rapidly in many countries, including those with high vaccination rates. Global growth concerns can weigh heavily on NZD, despite the upgraded view on RBNZ policy normalisation.”

Imre Speizer, head of NZ strategy at Westpac added: “The NZ$ is testing major support (and bottom of a month-old range) around 0.6915. A break would signal a further decline to the 0.6800 area during the week ahead. The NZD has been supported by the hawkish RBNZ recently, but should the risk averse mood globally intensify, a sharp breakdown would result.”

The pound to New Zealand dollar rate would surpass the 2.00 mark should the NZD/USD rate revert back to the 0.68 level, whilst at the same time the GBP/USD rate stays around Tuesday’s levels.

GBP/NZD tends to indicate the relative performance of GBP/USD and NZD/USD. The latter has been bolstered by increasing market expectations of interest rate hikes from the central bank over the past few months, as early as August.