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A rapid repricing in interest rate expectations supports Nomura's constructive stance on the Kiwi.
The investment bank says rates markets have moved from pricing in rate cuts to pricing in rate hikes in 2026 in short odrder, which has "positive implications for currencies such as AUD, NZD and SEK."
The call, made in a research note sent to clients Thursday, follows a shift in stance at the central banks of Australia and New Zealand, and underpins a 'long' NZD/USD trade at the investment bank.
Both the RBA and RBNZ have signalled the end to the rate cutting cycle, which has prompted money market participants to bet the next move is a rate hike.
This is lifting antipodean interest rate products, making them more attractive to foreign capital and domestic investors, and is "supporting our bullish views on AUD & NZD," says Nomura.
Above: The market has raised the outlook for NZ interest rates.
The investment bank is 'long' NZD against the dollar, this after the RBNZ announced a 25bp rate cut to 2.25% in November.
However, guidance was balanced and is no longer tilting towards further easing.
"Economic activity is picking up, with lower interest rates encouraging household spending, while the labour market was stabilising and a lower NZD was supporting exporters; inflation risks are now seen as balanced, with a new upside risk identified, namely that the recovery could be faster and stronger than expected," says Nomura.
Above: Two-year yield on NZ government bonds (top panel) are rising, and taking the Kiwi along.