New Zealand Dollar Expected to Decline Further – UBS

The New Zealand dollar experienced a decline following the Reserve Bank of New Zealand’s decision to lower interest rates earlier this week, with UBS forecasting that the currency will continue to weaken against the US dollar.

At its meeting on Wednesday, the Reserve Bank of New Zealand reduced the official cash rate by 50 basis points to 4.75%, aligning with market predictions. This decision was made during a scheduled Monetary Policy Review, which did not include a press conference or detailed statement.

Analysts at UBS noted in a report dated October 9 that the brief media release accompanying the rate cut suggests the possibility of another significant reduction in November, also by 50 basis points. They anticipate a gradual decrease in the cash rate throughout 2025, expecting a reduction of 25 basis points per quarter, ultimately bringing the rate down to 3.25% by the end of 2025. This target is consistent with the central bank’s assessment of a neutral rate.

In contrast, the Federal Reserve has begun to counter expectations of substantial rate cuts, with recent data supporting this position. Consequently, market participants in global rates have been adjusting their outlook, moving away from more aggressive easing predictions that were prevalent just a few weeks ago.

UBS projects that the New Zealand dollar will underperform compared to most G10 currencies, including the US dollar, over the next six to twelve months. They maintain their forecast for the NZD/USD to decline to 0.58 by the end of the year, noting increased downside risks to this prediction, particularly with the anticipated 50 basis point cut in November, an adjustment from a previously expected 25 basis points.

As of 05:20 ET (09:20 GMT), the NZD/USD was up 0.2% at 0.6076, following a decline of over 2% in the previous week.