TD Securities Maintains Bearish NZD Stance Amid Normalized Positioning and Rate Hike Expectations
TD Securities' FX strategist Howard Du maintains a bearish stance on the New Zealand Dollar (NZD) due to the Reserve Bank of New Zealand's (RBNZ) tightening, which is largely priced in. The NZD positioning has normalized since the hawkish July RBNZ rate hike.
The market has sharply pared back its short NZD positioning against both the US Dollar (USD) and Australian Dollar (AUD). This normalization suggests that the RBNZ's latest OCR guidance is still expected to be followed, with another rate hike anticipated at the upcoming meeting.
However, TD Securities believes that the cumulative RBNZ rate hike pricing in the market for the rest of 2026 may be elevated compared to the rest of the world. The NZ Q2 non-tradable CPI was more muted than expected, indicating a potential convergence of lower inflation rates with the rest of the world.
As a result, TD Securities predicts that AUD/NZD will remain supported above 1.20 in the coming months, with a year-end forecast of 1.22. Meanwhile, the bar for NZD/USD to sustain gains above 0.60 remains high despite broad-based US Dollar weakness.