BNY’s EMEA Macro Strategist Geoff Yu expects the Reserve Bank of New Zealand to keep the policy rate at 2.25% on 18 February, while noting that markets are increasingly pricing in tighter policy as inflation remains stubborn.
BNY says that confirmation of a policy shift could support higher NZD valuations. It adds that the currency is relatively underheld, which may affect positioning in NZD crosses.
Rbnz Policy Shift And Nzd Outlook
The bank also says the RBNZ can use strength in currency crosses to help limit rises in tradables inflation. It expects the NZD’s path to remain volatile, given New Zealand’s policy cycle.
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With the Reserve Bank of New Zealand meeting this Wednesday, we expect the cash rate to be held at 2.25%. The real focus, however, is on the bank’s tone, as markets are increasingly anticipating future rate hikes. Stubborn inflation is forcing the RBNZ to consider tightening its policy sooner rather than later.
We saw that inflation for the final quarter of 2025 clocked in at 4.5%, remaining significantly above the bank’s 1-3% target band. A tight labor market, with unemployment dipping to 3.8% in the same period, adds to the pressure on the RBNZ to signal a more aggressive stance. A hawkish message on Wednesday seems very likely, even if the rate itself does not move.
Trading And Positioning Implications
For derivative traders, this points toward positioning for a stronger New Zealand dollar over the next few weeks. Given the expected policy uncertainty, buying NZD call options is a clear way to play a potential upward move while managing risk. Affirming a change in direction from the RBNZ could give the currency a significant boost.
The currency also appears to be relatively underheld, suggesting there is plenty of room for investors to build long positions. This makes trades on the crosses, such as buying the NZD against the Australian dollar, an appealing strategy. The RBNZ can use a stronger exchange rate as a tool to limit inflation from imported goods.
We remember how the RBNZ paused its hiking cycle through most of 2025, hoping global disinflationary trends would ease domestic price pressures. That strategy now appears insufficient, and a clear pivot in language this week would confirm a new, more assertive policy direction. This is the shift that traders should be positioned for.
