CBA: New Zealand Dollar to Peak Soon

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"We expect NZD/USD to peak soon," says antipodean lender Commonwealth Bank (CBA).

To be sure, analysts think the New Zealand dollar still has some fuel in its tank, and it can advance 1 or 2 US cents in the coming months as "a strengthening global outlook or solid New Zealand economic data could push NZD/USD higher."

However, there are a number of fundamental factors that cannot be overlooked; "China’s economy remains weak, presenting downside risks to agricultural commodity prices and NZD. China is NZ’s largest trading partner," says CBA in a note released Feb. 25.

CBA also says bond yield differentials that are tied to central bank interest rates will weigh.

Although the New Zealand dollar started the year with an aggressive advance, it has already shown some signs of cooling, paring some gains as investors realised the Reserve Bank of New Zealand (RBNZ) won't necessarily raise interest rates before year-end.

Investors saw the RBA raise its rates across the Tasman Sea and thought this would translate into a similar policy response in Australia's nearest neighbour. This meant the NZD was effectively tracking AUD outperformance, with at least a part of that move relying on interest rate expectations.

But the RBNZ was careful to not condone the consensus viewpoint at February's policy meeting, prompting markets to reduce expectations for rate hikes in 2026. This proved a setback for NZD bulls who saw the currency as another vehicle to chase divergent central bank monetary policy cycles.

"We expect NZD/USD to peak soon," says CBA. "Our end‑March 2026 forecast is 0.60. We forecast NZD/USD to fall materially to 0.54 by year‑end."

The U.S. AI boom is expected by CBA economists to once again change the narrative about the U.S. economy from the negativity of the 2025 tariff shock to the positivity of 'US exceptionalism' in 2026. If U.S. exceptionalism was a headwind to NZD in 2025, it could be again later in the year.

"As the USD recovers, NZD/USD will fall," says CBA.

All else equal, this would imply weakness on the NZD crosses, for example, against the pound.

"The combination of a peaking NZD/USD spot and below average NZD/USD implied volatility provides New Zealand importers or foreign owners of New Zealand assets an opportunity to lock in a favourable NZD/USD spot before it decreases materially," says CBA.