NZD: Hawkish pricing faces growth reality – OCBC

OCBC strategists Sim Moh Siong and Christopher Wong highlight that recent New Zealand Dollar (NZD) gains on hawkish Reserve Bank of New Zealand (RBNZ) rhetoric look vulnerable. Markets now price nearly three hikes by year-end despite New Zealand’s negative output gap and below-trend growth. They expect only one 25bp hike in 4Q26, sees NZD exposed to higher Oil prices, and anticipates continued underperformance versus AUD.

RBNZ path and NZD vulnerability

"The NZD firmed after hawkish remarks from RBNZ Governor Breman, who signalled the Bank would not hesitate to hike rates aggressively if core inflation were to re-accelerate."

"Market pricing has swung sharply hawkish, with close to three rate hikes now priced by year-end. This looks stretched against New Zealand’s sizeable negative output gap and recent run of below-trend growth, which together set a high bar for aggressive tightening."

"We expect the RBNZ to begin hiking only in 4Q26, delivering a single 25bp move that lifts the policy rate to 2.75% by end-2026. Relative NZD underperformance versus the AUD should persist."

"However, any renewed rise in oil prices—particularly following the breakdown in US–Iran talks—would likely weigh on high-beta energy importers such as the NZD."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)