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RBNZ rate hike bets and a powerful USD pullback have boosted the New Zealand Dollar.
The New Zealand dollar is the best-performing G10 currency on Friday, rising against all its peers as a pullback in the U.S. dollar and renewed bets on a Reserve Bank of New Zealand (RBNZ) rate hike lift it off 17-year lows on a trade-weighted basis.
The kiwi is among the currencies most sensitive to swings in the U.S. dollar, so when the dollar eases the pressure comes off and the rebound can be sharp.
Falling global stock markets, usually a headwind for the risk-sensitive kiwi, have done little damage because concerns over AI spending have also pulled U.S. Treasury yields 4 to 9 basis points lower, taking the dollar down with them.
The moves: the New Zealand dollar to U.S. dollar rate is at 0.5652, a gain of 0.54% on the day, and the pound to New Zealand dollar rate is at 2.3542, with the kiwi 0.31% higher against sterling.
Indeed, it is the best performing G10 of the day:
Above: The New Zealand dollar's performance against G10 currencies on Friday.
How the equity sell-off develops will decide whether the rebound lasts.
"An orderly unwinding of the AI trade, accompanied by a rotation into value and defensive sectors, would support the case for a softer US dollar and a corresponding NZD/USD rebound. However, a more disorderly tech sell-off that spills across global equity markets and triggers widespread deleveraging would produce a very different outcome, with risk-sensitive currencies such as the New Zealand and Australian dollars likely to come under significant pressure," says XE in New Zealand.
RBNZ's Conway Keeps the Hike Alive
Turning to the domestic driver, RBNZ Chief Economist Paul Conway flagged upside risks to the inflation outlook on Thursday and described the 28 October policy decision as "wide open".
"We retain our view that the RBNZ will hike 25bp in its October and December meetings, delivering a 3.25% end-2026 OCR," says ASB.
ANZ expects next week's inflation figures to come in below the RBNZ's own forecast, yet still sees the case for a move: "the lower NZD and higher oil prices since September have materially changed the outlook. In our view, that keeps an October OCR hike firmly on the table."
The kiwi rose even after September retail card spending fell 0.4%, against Westpac's forecast of a 0.8% gain.
Daniella Arcadipane, Senior Currency Specialist at Indigo
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Talk to a specialistThe Kiwi Climbs Against the Aussie
The Australian dollar is the kiwi's closest peer in the day's rankings after Australian employment fell by 39,000 in September and unemployment rose to 4.7%, cutting the odds of a November Reserve Bank of Australia hike.
"We believe the NZD's recent weakness looks overdone with it tracking ~3-4 cents below our 'fair value' estimate. Too much weight has arguably been given to NZ's status as a 'net energy importer' and shift in the polling for the upcoming NZ General Election," says Corpay.
Corpay expects sturdy growth momentum, elevated agricultural prices and further RBNZ hikes to lift NZD/USD and pull AUD/NZD lower over the medium term.
A release of 100 million barrels of oil by the International Energy Agency has also eased some of the energy price pressure on New Zealand, which imports all of its refined fuel.
Corpay warns the dollar could turn volatile into the weekend if Fed Chair Warsh restates the case for tighter policy, a risk for a currency this closely tied to the dollar, with NZD/USD resistance at 0.5700 and support at 0.5580.
Daniella Arcadipane, Senior Currency Specialist at Indigo
Moving a life-changing sum abroad? You won’t be doing it alone.
One specialist explains every step in plain English and stays with it until the money lands. FCA authorised, FRN 594433.
Talk to a specialist
