Rbnz Rate Path In Focus
Markets are assessing the chance of a Reserve Bank of New Zealand rate rise this year as higher oil prices linked to the Middle East conflict feed into petrol costs and airfares. Pricing implies a 25-basis-point rise in September and more than a 70% probability of another increase in December. The US Dollar softens as risk aversion eases after reports the US may form a coalition to escort ships through the Strait of Hormuz. US Energy Secretary Chris Wright said the US-Israel conflict with Iran could end within “the next few weeks”, which could support oil supply and reduce energy prices. Looking back at the end of 2025, we saw the NZD strengthen on the back of surprisingly strong Chinese industrial and retail data. This, combined with high oil prices from the Middle East conflict at the time, pushed traders to price in aggressive rate hikes from the Reserve Bank of New Zealand. That hawkish sentiment helped keep the NZD/USD pair floating above the 0.5800 level. However, the situation has shifted significantly as we stand here in March 2026. The RBNZ’s rate hike in late 2025 has deepened New Zealand’s economic slowdown, which is now confirmed in the latest data. Statistics New Zealand’s figures showed GDP contracted by 0.2% in the final quarter of 2025, forcing the market to completely reverse its view and now anticipate rate cuts later this year.China Demand And Usd Drivers
The anticipated support from China has also proven to be less robust than we hoped. The most recent Caixin Manufacturing PMI for February came in at just 50.9, indicating only marginal expansion and highlighting ongoing struggles in their economy. This means the NZD can no longer rely on strong demand from its largest trading partner to drive its value higher. On the other side of the equation, the US dollar’s direction is now the main event, with the Federal Reserve signaling potential rate cuts starting mid-year. The CME FedWatch tool is showing over a 65% probability of a rate cut by the July meeting, which is capping any significant USD strength. This tug-of-war between a weak NZD and a potentially weakening USD suggests buying volatility through options like straddles could be a prudent strategy for the coming weeks. Create your live VT Markets account and start trading now.
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