At the meeting on May 27, ING's FX Strategist Francesco Pesole anticipates a hawkish hold from the Reserve Bank of New Zealand, while cautioning markets to undervalue the possibility of an unexpected hike. He anticipates two 25bp rises beginning in July and sees new predictions indicating tightening from 3Q. Global issues continue to be perceived as a major driver of NZD performance.
Kiwi prospects linked to the RBNZ route
"We believe there are sufficient reasons to increase at this meeting on May 27 (an underpriced risk), but the Reserve Bank of New Zealand has made a dovish mistake and is more likely to choose a hawkish hold. We anticipate the first of two hikes in July, and new estimates may indicate tightening as early as the third quarter. However, NZD movements should continue to be mostly driven by foreign factors.
"In any event, we believe that a hike in July is becoming more likely and should not be a one-time event. We currently predict 50 basis points of tightening in 2026, but this is extremely contingent on the dynamics of the energy market. We believe RBNZ's communication at this meeting will aim to maintain current hawkish pricing, which is 21bp for July and 75bp by year's end.
"Markets would have an implied green light to maintain pricing around three rises by year's end if our predictions for updated rate projections are validated. There would be little motivation to lower prices much below two hikes, even in the event of a de-escalation in the Middle East.
Given the market's propensity to reward currencies supported by proactive central bank tightening, this environment is favorable for the New Zealand dollar. Nonetheless, US rate forecasts, global risk sentiment, and Middle East stories continue to dominate the near-term outlook.
"In addition to our projections for two RBNZ rises and one Fed cut by year-end, our call for NZD/USD to recover above 0.60 in 2H26 continues to hinge on a relatively benign resolution in the Gulf."
Kiwi prospects linked to the RBNZ route
"We believe there are sufficient reasons to increase at this meeting on May 27 (an underpriced risk), but the Reserve Bank of New Zealand has made a dovish mistake and is more likely to choose a hawkish hold. We anticipate the first of two hikes in July, and new estimates may indicate tightening as early as the third quarter. However, NZD movements should continue to be mostly driven by foreign factors.
"In any event, we believe that a hike in July is becoming more likely and should not be a one-time event. We currently predict 50 basis points of tightening in 2026, but this is extremely contingent on the dynamics of the energy market. We believe RBNZ's communication at this meeting will aim to maintain current hawkish pricing, which is 21bp for July and 75bp by year's end.
"Markets would have an implied green light to maintain pricing around three rises by year's end if our predictions for updated rate projections are validated. There would be little motivation to lower prices much below two hikes, even in the event of a de-escalation in the Middle East.
Given the market's propensity to reward currencies supported by proactive central bank tightening, this environment is favorable for the New Zealand dollar. Nonetheless, US rate forecasts, global risk sentiment, and Middle East stories continue to dominate the near-term outlook.
"In addition to our projections for two RBNZ rises and one Fed cut by year-end, our call for NZD/USD to recover above 0.60 in 2H26 continues to hinge on a relatively benign resolution in the Gulf."
