New Zealand’s Consumer Price Index (CPI) for the fourth quarter is expected to stay at 3.0% year-on-year, just above the Reserve Bank of New Zealand’s (RBNZ) prediction. This could lead to further tightening of policies. Recent CPI forecasts have been quite reliable, although some risks remain. Non-tradable inflation is predicted to increase by 0.5% from the previous quarter, compared to the RBNZ’s estimate of 0.4%.

Interest Rate Speculation Continues

The consensus on CPI could fuel speculation about interest rates in New Zealand’s dollar swap market, offering support for the currency. In the short term, traders prefer the New Zealand Dollar (NZD) in different currency pairs rather than against the US dollar. These insights are compiled by the FXStreet Insights Team, which includes journalists selecting analyses from various market experts. Looking back at the fourth quarter of 2025, inflation was slightly above what the central bank expected. This data showed that inflation remained stubbornly at 3.0%, strengthening the belief that the RBNZ will keep its cautious approach into 2026. This has led to ongoing speculation about interest rate hikes in the months ahead. The swap market reflects this cautious stance, creating opportunities for traders. In the past month, the New Zealand 2-year swap rate rose by 35 basis points to 5.85%, indicating expectations of a higher Official Cash Rate. Traders should consider positioning themselves for a steepening of the curve as the RBNZ’s first meeting of the year approaches.

Options Market Strategy

In the options market, the differing policies support buying NZD calls, especially against currencies with more lenient central banks. For instance, 3-month implied volatility in NZD/JPY has climbed to its highest level since mid-2025, signaling that the market anticipates larger price movements. Creating trades that benefit from a stronger Kiwi in these pairs seems to be the best approach. We prefer to express this view through cross currency pairs instead of against the US dollar. The Federal Reserve’s ongoing battle with inflation makes NZD/USD a tricky trade. Historical patterns show that when central banks follow different policies, cross-currency pairs like NZD/AUD offer a clearer signal on specific rate views. Although the main trend suggests a stronger NZD, traders should stay vigilant about global growth risks. A significant downturn could affect commodity currencies and possibly lead the RBNZ to alter its stance unexpectedly. Using option strategies like risk reversals may provide a cost-effective way to position for NZD strength while limiting potential losses. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now