Commerzbank’s Volkmar Baur argues that the New Zealand Dollar faces ongoing headwinds as the Iran conflict, higher energy prices and renewed inflation pressures derail a tentative economic upswing. The bank expects only two RBNZ rate hikes versus three priced by markets, sees NZD/USD drifting lower toward 0.55 by late 2027, and projects EUR/NZD rising to 2.20.

Kiwi weighed by weak growth outlook

"The market is currently pricing in three rate hikes in New Zealand and one in the United States by year-end. We believe that both central banks will deliver one rate hike less than the market currently expects. The current exchange rate of the New Zealand kiwi therefore appears appropriate, which is why we expect only slight continued downward pressure."

"Next year, the Fed in the United States is likely to cut rates. At the same time, however, strong growth should support the US dollar. We also expect growth in New Zealand to remain anaemic."

"This combination of persistently high inflation and weak growth will prevent the central bank from raising the policy rate back to neutral next year as well. Corresponding market expectations should therefore be priced out, which will continue to weigh on the kiwi in 2027."

"We expect two rate hikes to anchor inflation expectations. However, this is less than what the market is pricing in, which limits the kiwi’s upside potential and points to continued pressure in the medium term."

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