ING’s FX Strategist Francesco Pesole expects the Reserve Bank of New Zealand to deliver a hawkish hold at the 27 May meeting, while warning markets underprice the risk of a surprise hike. He sees new projections signalling tightening from 3Q and looks for two 25bp hikes starting in July. NZD performance is still seen as largely driven by global factors.

Kiwi outlook tied to RBNZ path

"In our view, there are enough arguments to hike at this 27 May meeting (an underpriced risk), but the Reserve Bank of New Zealand has erred on the dovish side and looks more likely to opt for a hawkish hold. New projections may show tightening already in 3Q, and we expect the first of two hikes in July. NZD moves should stay mostly externally driven though."

"In any case, a hike in July is looking increasingly likely in our view, and should not be a one-and-done. Our current forecast is for 50bp of tightening in 2026, though this is highly dependent on energy market dynamics. Swap market pricing is 21bp for July and 75bp by year-end, and we suspect RBNZ communication at this meeting will seek to preserve this hawkish pricing."

"If our expectations for revised rate projections are confirmed, markets would receive an implicit green light to keep pricing around three hikes by year-end. Even in a scenario of Middle East de-escalation, there would be limited incentive to push pricing much below two hikes."

"This backdrop is supportive for NZD, given the market's tendency to reward currencies backed by proactive tightening by central banks. However, the near-term outlook remains dominated by Middle East headlines, global risk sentiment and US rate expectations."

"Beyond the short term, our call for NZD/USD to return above 0.60 in 2H26 continues to rest on a relatively benign resolution in the Gulf, alongside our expectations for two RBNZ hikes and one Fed cut by year-end."

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