New Zealand Dollar: Beware a 2026 Rate Cut Surprise

🎯 GBP/NZD year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. Request your copy.

File image of RBNZ governor Anna Breman. Image: Riksbank.

If the RBNZ cuts rates this year, the NZ Dollar's 'buy' thesis would be challenged.

The emerging consensus is that the Reserve Bank of New Zealand (RBNZ) will raise interest rates in the coming months, mirroring its close neighbour, the Reserve Bank of Australia (RBA).

The view that the commodity dollars march in lockstep is a powerful driver of New Zealand dollar outperformance this year, with the currency registering advances against most of its G10 peers as investors prepare for higher interest rate returns in NZ.

However, a new note from Bank of America warns against this bet.

"We pay particular attention to Canada and New Zealand where markets are pricing hikes, but our economists see additional rate cuts," says a note from Bank of America Global Research, released Feb. 10.

The call comes ahead of next week's RBNZ policy meeting, where new governor Anna Breman will need to confront the 'hawkish' repricing in rate expectations.

Does she verify those views and risk a young and vulnerable economic revival? Or does she push back, and keep a balanced guidance, saying rates will fall if the data warrants?

The latter looks the more plausible and if delivered would weigh on the kiwi.

Bank of America strategists "remain bearish NZD and recommend positioning via NZD put spreads ahead of the RBNZ."

"The incoming Governor's comments suggests the RBNZ is unlikely to raise rates in the foreseeable future and she could strike a more dovish tone than markets are pricing, potentially citing a negative output gap and softer cyclical inflation," they add.

🎯 GBP/NZD year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. Request your copy.