Markets price nearly 300 basis points of RBNZ tightening by December but dismiss the Kiwi due to negative carry versus the USD.
The New Zealand Dollar holds the steepest implied tightening path among developed economies, with markets pricing nearly 300 basis points of Reserve Bank of New Zealand (RBNZ) hikes by December. Despite the central bank’s explicit guidance for rate increases, NZD/USD failed to sustain gains, closing near 0.5800 after retracing post-US CPI rally.
The RBNZ paused its easing cycle in May, holding rates at 2.25% following over 300 basis points of cuts since 2022. Policymakers signaled further hikes to curb inflation, yet even fully priced tightening would leave the policy rate below the Fed’s 3.50%-3.75% corridor, offering no yield advantage.
The Kiwi’s repricing reflects a shift from aggressive easing to hikes but delivers only less-negative carry, undermining its appeal in a risk-averse environment.