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The New Zealand Dollar recovered from its post-RBNZ floor, but one institutional analyst we follow says weakness over the coming months remains likely.
Volkmar Baur, FX strategist at Commerzbank, says expectations for additional stimulus measures from the Reserve Bank of New Zealand (RBNZ) underpin a view that the Kiwi currency will continue to underperform peers.
The call comes after the RBNZ unexpectedly cut interest rates by 50 basis points, defying an expectation for a more pedestrian 25bp cut.
The New Zealand Dollar slid sharply following the decision, but then staged a notable recovery that meant it ended the day more or less where it started. (Those with NZD purchase requirements should consider apportioning part of their payment at current levels in event of a deeper relief rally).
The impressive comeback hints that investors shifted thinking on the outlook for New Zealand interest rates, judging that the 50bp could be the last cut for some time.
"I do not expect the RBNZ to cut interest rates further in the coming months," says Baur. "Inflation has recently proven rather stubborn and is likely to have remained well above the 2% target range in the third quarter."
He points out that the RBNZ's next meeting at the end of November will be the last for the current chair, Christian Hawkesby, before the new chair, Anna Breman, takes over in December.
"It therefore seems unlikely to me that interest rates will be lowered further in the next two meetings. In fact, this transition may have contributed to today's larger than expected decision," he explains.
Nevertheless, the RBNZ left open the possibility of further key interest rate cuts if necessary.
"The door therefore remains open. The central bank thus clearly placed more emphasis on the renewed slowdown in the economy than on the recent slight rise in inflation and also appears to be convinced that the weaker economy will dampen inflation in the near future," says Baur.
Above: 2.3355 proved the kiss of death again for GBP/NZD's topside aspirations.
Despite not expecting an interest rate cut at the next meeting, Baur says the RBNZ has made it clear that its focus is currently much more on the weak economy than on the current rise in inflation.
"This alone is reason enough for the kiwi to be under pressure and could mean that this remains the case in the coming months," he explains.
A pause in the rate cutting cycle could allow the NZD to recover recently lost ground and we could even see the currency stage a 'mini' rally into year-end.
However, the strong likelihood of a resumption of the cutting cycle in 2026 speaks of fresh lows in 2026.