New Zealand Dollar: Dovish RBNZ hike weighs – BBH

Brown Brothers Harriman's Elias Haddad reports that the New Zealand Dollar (NZD) struggled following the Reserve Bank of New Zealand (RBNZ)'s 25 basis point hike to 2.75%, alongside a message suggesting reduced need for further tightening. The RBNZ's OCR path, currently near 3.25%, appears static, standing in contrast to market expectations near 4.00%, which could potentially lead to additional dovish repricing and further pressure on the NZD.

The RBNZ's decision to raise the Official Cash Rate (OCR) for the second consecutive time by 25 basis points to 2.75% was anticipated, but the bank also emphasized that spare capacity remains in the economy, particularly the labor market. The RBNZ maintained its OCR projection at around 3.25% for 2028, leaving a considerable gap between the actual hike and market pricing. This discrepancy has contributed to the NZD's underperformance across various currencies.