HSBC Backs New Zealand Dollar

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One of the world's biggest banks thinks this is the NZD's year to outperform.

"Buy NZD-NOK," says HSBC in a year-ahead currency strategy note.

The call comes following a multi-month run of weakness for the currency against most of its G10 peers owing to a soft domestic economy and numerous interest rate cuts at the Reserve Bank of New Zealand (RBNZ).

However, the tide might have turned on that depreciation.

"We believe the NZD has further room to strengthen after its post-RBNZ bounce put a floor under the currency going into 2026," says Paul Mackel, head of FX research at HSBC.

An aggressive rate cutting stance through 2025 lowered the value of New Zealand's interest rate-linked assets, making them less attractive to foreign investors.

It also meant New Zealand dollars could be borrowed cheaply and exported elsewhere to earn higher interest for investors. This outflow of money naturally weighs on a currency.

But, the Reserve Bank of New Zealand (RBNZ) is now expected to raise interest rates at least once in 2026, with that move coming before October.

On November 26 the Kiwi currency rallied after the RBNZ lowered the OCR to 2.25% and released new forecasts that indicated it projects the rate to be at 2.20% in the first half of 2025, i.e. effectively unchanged.

Forward guidance also turned more neutral, showing there's less of a bias to follow through with further cuts.

With RBNZ set to raise rates in 2026, and other central banks set to lower rates further, interest rate differentials could start working in NZD's favour again.

Above: Interest rate expectations now favour NZD.

In fact, HSBC says NZD stands out due to the scale of policy rate repricing seen in recent months: where the NZD was weighed by a central bank intent on lowering interest rates, it sees support from the belief the next move will be a hike.

The NZD was an underperformer in 2026 owing to the RBNZ's policy stance, which, of course, was a reaction to the country's poor economic performance.

GDP growth was bumpy, with a contraction being recorded in Q2, while business and consumer confidence showed an economy beset by doubt.

However, by the final quarter, there were distinct improvements in the data pulse that indicated a corner was being turned. "Positive fundamentals for New Zealand include the continued current account improvement and a contained budget deficit, with green shoots of an economic recovery in play," says Mackel.

HSBC is not alone in thinking the NZD could appreciate this year, with names such as Citi also seeing outperformance.

However, the NZD is yet to really step up and deliver, with the currency continuing to hover near recent lows, particularly against non-USD currencies.

So, although the stars are aligning behind a bull case, the trigger is yet to be pulled.