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The Reserve Bank of New Zealand (RBNZ) has changed tack, and this will support the NZD say strategists.
"We think the RBNZ easing cycle is over, and we hold a positive view on NZD," says Dominic Bunning, FX strategist at Nomura.
The RBNZ lowered interest rates on Wednesday but significantly altered its guidance on future monetary policy, suggesting that November's would be the final rate reduction in the cycle.
Markets now see a steady profile for the RBNZ's OCR for 2026, with increased odds that interest rates start moving higher again by 2027.
That's a helpful profile for the New Zealand Dollar, which like most currencies, relies heavily on what its domestic interest rates are doing.
"We turn constructive on NZD as positioning unwinds and prefer to express this via short EUR-NZD," says Nicholas Chia, FX and Macro Strategist at Standard Chartered Bank.
The NZD has been a chronic underperformer during 2025, most notably against the non-USD currencies, such as sterling and the euro.
The single most important factor behind that performance was the economy's slow run rate, which required the central bank to offer support via numerous rate reductions.
Remove those cuts from the horizon, and currency analysts see a better supported Kiwi.
"What we think is the end of the RBNZ’s easing cycle should limit the scope for further NZD downside at current levels," says Chia.
Above: GBP/NZD might have peaked if the strategists are correct.
The currency rallied after the RBNZ lowered the OCR to 2.25% and released new forecasts that indicated it projects the rate to be at 2.20% in the first half of 2025.
This was higher than the market consensus had anticipated, requiring a readjustment in expectations that naturally assisted the NZ dollar higher.
"We expect more NZD shorts to be closed out over the coming months, given the extreme NZD weakness against G10 crosses," says Chia.
The RBNZ said risks to the inflation outlook are now seen as more balanced, while warning that a new upside risk has been identified, namely that the recovery could be faster and stronger than expected.
The RBNZ previously noted that the Committee remained "open" to further reductions in the OCR, but today said that "future moves in the OCR will depend on how the outlook for medium-term inflation and the economy evolve".
Amidst signs of a strengthening New Zealand economic recovery, the RBNZ said the labour market was stabilising.
It saw a "low hire, low fire" employment situation that can underpin wages, which will in turn underpin inflation and lessen the need for further rate reductions.
If inflation starts to surprise to the upside, the talk will soon shift to interest rate rises,