New Zealand Dollar Extends Gains On Rising RBNZ Hike Bets

Above: NZD gained against all G10 peers on Feb. 09.

The New Zealand Dollar continues to outperform as currency markets price in a further interest rate rise at the Reserve Bank of New Zealand following this week's strong labour market data.

"NZD/USD jumped about 0.5% in the Asia session as market participants raised the prospect of another RBNZ rate hike," says Carol Kong, a strategist at Commonwealth Bank.

The Pound to New Zealand Dollar and Euro to New Zealand Dollar are lower by a similar margin at 2.06 and 1.7585, respectively.

According to money market pricing, investors now see a 90% chance of a further interest rate hike of 25 basis points by May. Markets have pushed back the first RBNZ rate cut to November.

This would make the RBNZ one of the last major central banks to cut rates, offering the NZ Dollar support via the interest rate channel.

"The sharp repricing came after the stronger than expected Q4 2023 NZ labour market data earlier in the week," says Kong.

New Zealand employment increased 0.4% quarter-on-quarter in the fourth quarter of 2024, said StatsNZ, which was above the 0.3% the market expected and makes a return to growth from the third quarter's -0.2%.

Economists at ANZ say a 25 basis point hike from the RBNZ later this month has become a very real possibility, and RBNZ Governor Orr’s speech on 16 February could raise the market-perceived probability of a hike further.