OCBC strategists Sim Moh Siong and Christopher Wong note that the New Zealand Dollar (NZD) has recently strengthened following hawkish comments from Reserve Bank of New Zealand (RBNZ) Governor Breman, who indicated the central bank would not hesitate to hike rates aggressively if core inflation accelerates [1]. Despite this, market pricing has become sharply hawkish, with nearly three rate hikes expected by year-end. OCBC analysts argue this outlook is stretched, given New Zealand's sizeable negative output gap and a period of below-trend economic growth, which together make aggressive tightening unlikely [1].
OCBC forecasts that the RBNZ will only begin hiking rates in the fourth quarter of 2026, with a single 25 basis point increase that would bring the policy rate to 2.75% by the end of 2026 [1]. The strategists anticipate continued NZD underperformance relative to the Australian Dollar (AUD) [1].
Additionally, OCBC warns that any renewed rise in oil prices—especially following the breakdown in US–Iran talks—could further weigh on the NZD, given its status as a high-beta energy importer [1].
Overall, the analysts suggest that while hawkish RBNZ rhetoric has temporarily boosted the NZD, the currency remains vulnerable to both domestic growth challenges and external shocks such as higher oil prices [1].
CONCLUSION
OCBC sees current market pricing for aggressive RBNZ hikes as overly optimistic, given New Zealand's weak growth outlook. The NZD is expected to underperform against the AUD and remains exposed to risks from rising oil prices. Investors should be cautious about the sustainability of recent NZD gains.