OCBC strategists Sim Moh Siong and Christopher Wong note New Zealand Dollar (NZD) has rallied on hawkish Reserve Bank of New Zealand (RBNZ) rhetoric and easing Oil risks, but warns markets may be overpricing tightening. With a sizeable negative output gap and weak growth, NZD is expected to lag Australian Dollar (AUD). They project the RBNZ to start hiking only in 4Q26, with the policy rate at 2.75% by end-2026.

RBNZ hikes seen delayed to 4Q26

"The NZD firmed after hawkish comments from RBNZ Governor Breman, who warned the Bank would respond forcefully with rate hikes if core inflation accelerated."

"While softer oil prices could allow the NZD to strengthen further against the USD, we still expect it to underperform the AUD."

"Market pricing has shifted sharply hawkish, with nearly three rate hikes now priced by year-end."

"This looks demanding given New Zealand’s sizeable negative output gap and sub-par growth over recent quarters, which raise the bar for aggressive tightening."

"We expect the RBNZ hiking cycle to begin only in 4Q26, with a single 25bp hike lifting the policy rate to 2.75% by end-2026."

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