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Citi says the New Zealand Dollar’s depreciation should now stabilise.
The world's largest prime FX dealer says the NZD’s depreciation should now stabilise as markets see the RBNZ’s easing cycle ending, interest rates turning higher and the currency looking "grossly undervalued" against the USD, with NZD/USD expected to hold above 0.55 and rebound toward 0.59.
Following this week's Reserve Bank of New Zealand interest rate cut, and associated guidance, Citi says to expect a short-term correction stronger in NZD/AUD after the recent overshoot.
1. NZD Depreciation Likely to Stabilise
Citi’s core call is that the period of NZD depreciation should now stop as markets conclude the RBNZ’s easing cycle is finished.
The bank notes that interest rates have begun to turn higher, with markets “pricing in an end to rate cuts” following the move to 2.25% OCR.
2. NZD Is “Grossly Undervalued” vs USD
Citi’s multifactor model shows the fair value of NZD/USD near 0.60, while spot has dropped toward 0.55, the weakest since 2022.
Analysts expect the pair to hold above 0.55 and recover toward 0.59 in the coming months. This undervaluation is one of the main reasons Citi sees depreciation pressure easing.
3. Temporary NZD Rebound Is Expected
Citi says it “would not be surprised if the NZD rebounded temporarily,” driven by:
• end of the RBNZ easing cycle
• NZD undervaluation vs USD
• relative stability expected in AUD/USD
4. But NZD Will Underperform AUD Over the Long Term
Even though the near-term sell-off in NZD/AUD has overshot, Citi stresses the structural backdrop still favours AUD:
• New Zealand interest rates will remain below Australia’s
• New Zealand’s large balance-of-payments gap vs Australia
• Historical tendency for AUD to outperform when RBNZ runs lower rates
The long-term projection:
? AUD/NZD rising toward 1.25 (i.e., NZD weaker).
Short-term:
? Expect a correction back to 1.12–1.13 over ~6 months after the recent rapid AUD surge.
5. NZD/JPY: Upside Capped Around ¥90
Citi argues the July peak around ¥99 was the top of a long-term cycle. A rebound toward ¥90/NZD is possible, but they see major resistance there and warn that:
• Japanese government may intervene if JPY weakens excessively
• Risk-off shocks could push NZD/JPY toward ¥84 (the –2σ Bollinger band)
This leaves an asymmetric downside for NZD/JPY.