Home · Business · Sep 29 archive
New Zealand Dollar falls toward 0.5650 despite rising RBNZ rate hike bets
Confirmed
In Short: New Zealand's GDP grew by 0.2% in Q2, surpassing expectations, but the NZ Dollar remains under pressure due to geopolitical tensions and inflation risks.
New Zealand's economy grew by 0.2% in the second quarter of 2026, outperforming both market and central-bank forecasts, according to Statistics New Zealand. This growth, which was higher than the 0.1% estimate, has attracted some buyers to the New Zealand Dollar (NZD), as reported by FXStreet. However, the NZD remains under pressure against the US Dollar (USD) due to persistent tensions between the United States and Iran, which support demand for the Greenback.
The New Zealand Dollar is also facing headwinds from the expectation of another interest rate hike by the Reserve Bank of New Zealand (RBNZ). Markets now see around an 80% chance that the RBNZ will raise its Official Cash Rate (OCR) by 25 basis points to 3.00% at its October 28 meeting, compared with roughly a one-in-three chance immediately after the September rate hike.
RBNZ Governor Anna Breman warned that higher crude oil prices could push near-term inflation above the central bank's projections, reinforcing expectations of another rate hike. The upcoming New Zealand Consumer Price Index (CPI), scheduled for October 21, will be closely watched, coming one week before the monetary policy decision.
BNZ senior economist Doug Steel commented, 'There has been a stronger than expected economic pulse,' reflecting the resilience of the New Zealand economy. Despite the positive GDP growth, the RBNZ is likely to remain cautious, as persistent inflation could reinforce expectations of another rate hike, even though the RBNZ's latest projections initially pointed to a pause in October before another increase in December.
The pair initially climbed toward 0.7030 before reversing and falling as low as the 0.6980 region. The Australian Dollar (AUD) initially benefited from the Reserve Bank of Australia’s decision to raise its Cash Rate by 25 basis points (bps) to 4.60%, its highest level in around 15 years. However, the rate hike was already largely anticipated, and attention quickly shifted toward RBA Governor Michele Bullock’s press conference.
Governor Michele Bullock said the Board would raise rates again if necessary, adding a 'dovish taint' to the decision, according to Francesco Pesole, FX Strategist at ING. TD Securities views Tuesday’s move as a 'risk management hike' rather than the beginning of a new tightening cycle. The Governor also reiterated that policymakers are prepared to raise interest rates again if necessary.
The British pound looks set to extend its recovery against the New Zealand dollar in the days ahead, but the market isn't ready to trend meaningfully. The British pound has been turned back at the ceiling again, with New Zealand inflation expectations due on Thursday.
Background
The Resolution Foundation had previously warned that sustained hostilities in the Middle East could deliver an £11 billion hit to UK family finances through higher mortgage rates, utility bills, and fuel costs.
Bond yields retreated slightly on Monday, easing from recent highs as investors hoped for a pause in the Federal Reserve's rate hike cycle.
What's confirmed
- The New Zealand Dollar (NZD) remains under pressure against the US Dollar (USD) as persistent tensions between the United States (US) and Iran support demand for the Greenback, while expectations of another interest rate hike by the Reserve Bank of New Zealand (RBNZ) help limit the Kiwi's losses.
- Persistent tensions between Washington and Tehran are therefore maintaining some demand for safe-haven assets, including the US Dollar, and acting as a headwind for NZD/USD.
- However, the prospect of further monetary tightening in New Zealand provides some support to the New Zealand Dollar.
- Markets now see around an 80% chance that the RBNZ will raise its Official Cash Rate (OCR) by 25 basis points to 3.00% at its October 28 meeting, compared with roughly a one-in-three chance immediately after the September rate hike.
- Expectations have strengthened notably after RBNZ Governor Anna Breman warned that higher Crude Oil prices could push near-term inflation above the central bank's projections.
- The upcoming New Zealand Consumer Price Index (CPI), scheduled for October 21, will therefore be closely watched, coming one week before the monetary policy decision.
- Persistent inflation could reinforce expectations of another rate hike, even though the RBNZ's latest projections initially pointed to a pause in October before another increase in December.
- Governor Michele Bullock said the Board would raise rates again if necessary.
What's still developing
- Compare live NZD exchange rates with quarterly bank and consensus projections against GBP, EUR, USD, JPY and other major currencies.
- Consensus direction across the NZD exchange rates covered on this page.
- For Q4 2026, the consensus places 11 NZD pair forecasts above today’s live rate, 0 below and 0 broadly unchanged within ±0.5%.
- Both central banks raised interest rates by 25 bps last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.
- GBP/NZD's recovery has been rejected at the 200-day moving average, and a falling U.S. Dollar is working for the Kiwi.
- Despite the positive GDP figures, higher oil prices and election-year uncertainty have weighed on activity.
- She also expressed hope that the four hikes delivered this year would prove sufficiently restrictive to slow inflation and said that further tightening might not be required if inflation eases.