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The New Zealand dollar could benefit from a 'hawkish' sounding Reserve Bank of New Zealand on Wednesday.
Analysts at Crédit Agricole say the Kiwi dollar is looking undervalued heading into the midweek RBNZ decision, leaving it ripe for a short-term rebound.
"Ahead of the RBNZ meeting later this week, the FAST FX model has triggered another long NZD/USD trade," says a note from the Crédit Agricole released Monday.
"NZD/USD's fair value increased from 0.5780 to 0.5846 due to a rise in the NZ-US short-term rates spread, which was partly offset by a fall in global equities. NZD/USD’s fall has caused the exchange rate to become more than 1.5 standard deviations undervalued," it adds.
With the kiwi looking undervalued and unloved into Wednesday, the odds of an upside reaction to what the RBNZ offers are elevated.
Any NZD/USD rebound should lift all the boats in the harbour, including NZD/GBP and NZD/EUR.
Markets are expecting the RBNZ to lower the OCR by 25 basis points to 2.25%, but there's a good chance that this could be the last cut in the cycle, owing to encouraging signs that the economy has finally turned a corner.
If so, the NZD would find itself supported as the seemingly relentless headwinds posed by the NZ interest rate story finally ease.
The RBNZ will find it difficult to justify further cuts beyond here, given New Zealand's CPI inflation for Q3 2025 rose to 3.0% from 2.7%.
This is not only the highest value since 2024 but also the upper bound of the central bank's 1.0% - 3.0% inflation target band, and it was in line with the RBNZ's August MPS forecast.
"In terms of tradeable scenarios, should the RBNZ cut by 50 bps again – unlikely – this would catch many off guard and create sizeable moves to the downside in the NZD," says Aaron Hill, Chief Market Analyst from FP Markets.
Given the bar to a negative surprise is set relatively high, any downside moves on the day should be short-lived.
"We also have to account for the possibility of an expected 25-bp cut and a strong hawkish one-and-done message that the easing cycle is at its end; this would be bullish for the NZD," says Hill.
Analysts at TD Securities are meanwhile tipping the Kiwi to be one of the big outperformers of 2026 as it puts an end to the long-running spell of weakness behind it.
"NZD is very under-owned and positioning is extremely light. Our high frequency and long-term fair value models flag the NZD as cheap, and we expect market factors (equity, rates, and risk) to provide a tailwind to NZD strength in 2026," says TD Securities.
"We continue to see 7-8% gains in Antipodean FX into next year on a stabler global growth outlook, risk-on sentiment and another value driven adjustment lower in the USD," it adds in its 2026 strategy preview.
Turning to the pound to New Zealand dollar exchange rate (GBP/NZD), the chart shows the pair to still be well supported at 2.3354 on Monday.
A 'hawkish' RBNZ scenario would put the pair under pressure and force a retest of the 21-day moving average at 2.3246.
For now, downside looks limited and the technical signals still advocate for an eventual move higher and a retest of the 2025 high at 2.3520.