The New Zealand dollar is underperforming compared to all major currencies, with short-term downside potential, according to BBH FX analysts. The Reserve Bank of New Zealand (RBNZ) is anticipated to reduce the policy rate by 25 basis points to 2.75%, with a 45% chance of a larger 50 basis points cut to 2.50% as implied by the swaps market.

New Zealand’s steeper Q2 GDP downturn provides room for RBNZ to advance rate cuts. In August, RBNZ indicated “there is scope to lower the OCR further,” predicting a 25 basis points reduction by December and another in the first half of 2026, potentially bringing the policy rate to 2.50%. The upcoming meeting will not have a Monetary Policy Statement, with the next one scheduled for 26 November.

Insights from Experts

Information from the FXStreet Insights Team, composed of journalists, includes select market observations from experts along with insights from internal and external analysts. Their content is populated with commercial notes and expert assessments to provide clarity and details on market trends.

Given the high probability of a rate cut from the Reserve Bank of New Zealand tonight, we see continued downward pressure on the NZD. The market is pricing in a 25 basis point cut, but the 45% chance of a larger 50 basis point cut suggests a dovish surprise is very possible. This expectation is a primary driver for positioning against the kiwi dollar in the immediate term.

This outlook is reinforced by New Zealand’s recent economic data, which has been consistently soft. The weak Q2 GDP figures are now compounded by the latest Q3 inflation numbers from September 2025, which came in at just 2.9%, falling below the RBNZ’s target band. Weak domestic demand gives the central bank a clear mandate to ease monetary policy further to stimulate the economy.

External factors are also weighing heavily on the currency, particularly commodity prices. The most recent Global Dairy Trade auction just last week showed a significant 4.2% drop in whole milk powder prices, a key export for New Zealand. This decline in terms of trade puts fundamental pressure on the NZD’s value against its trading partners.

Policy Divergence and Financial Strategies

We see a growing policy divergence between the RBNZ and other central banks, especially the U.S. Federal Reserve. Following its September 2025 meeting, the Fed maintained a hawkish tone, keeping its policy rate firm and signaling no cuts are imminent. This widening interest rate differential makes holding US dollars more attractive than the lower-yielding kiwi.

For derivative traders, buying NZD put options with expirations after the next Monetary Policy Statement on November 26 seems prudent. This strategy allows for capitalizing on a potential drop while capping downside risk if the RBNZ is less aggressive than anticipated. Volatility is expected to remain high, making options an effective tool to navigate the uncertainty.

Alternatively, selling NZD/USD futures contracts offers a more direct way to short the currency. We saw a similar dynamic unfold during the 2015 RBNZ easing cycle, where a series of rate cuts led to a sustained depreciation in the kiwi dollar over several months. That historical precedent supports establishing short positions now in anticipation of a similar trend.

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