New Zealand dollar has further to fall

Investing.com – The New Zealand dollar fell after the Reserve Bank of New Zealand cut interest rates earlier this week, and UBS expects the currency to fall further against the US dollar.

The RBNZ cut its official cash rate by 50 basis points to 4.75% at its meeting on Wednesday, an outcome that was consistent with market expectations.

The cut was triggered by a planned Monetary Policy Review, meaning there was no press conference or statement, said analysts at UBS, in a note dated Oct. 9. 

“But, we believe the accompanying brief media release enhances the prospects of another jumbo cut in November (50bps),” said the Swiss bank. “Beyond this, we expect a sequential lowering of the cash rate over 2025 (25bps of easing per quarter) with the cash rate reaching 3.25% by end-2025—the level broadly aligned with the central bank’s estimate of neutral.”

By contrast, the Federal Reserve has begun pushing back against expectations of large rate cuts, and recent data are validating its stance. Importantly, global rates market participants have been pricing out the more extreme easing projections of just a few weeks ago. 

“We expect the NZD to underperform most G10 currencies over the next six to 12 months, even the US dollar,” said UBS. “We reiterate our forecasts for the to decline to 0.58 by year-end, though we see downside risks to this estimate as we now expect a 50bp cut in November (previously 25bps).”

At 05:20 ET (09:20 GMT), NZD/USD rose 0.2% to 0.6076, having fallen over 2% over the course of the last week.