Westpac Predicts NZD to Hit 0.65 by 2027 Despite Economic Gaps

Westpac has set a bullish forecast for the New Zealand Dollar (NZD), predicting it will reach 0.65 against the US Dollar (USD) by December 2027. Despite easing price pressures, the bank maintains a positive outlook for the NZD, although recent data shows a gap between improving business sentiment and actual economic recovery. The Quarterly Survey of Business Opinion (QSBO) revealed a rise in business confidence to a net 40% positive, but trading activity slipped to -1%. Westpac advises the Reserve Bank of New Zealand (RBNZ) to stick with its October pause on interest rate hikes, citing no compelling reason for immediate action.

The bank forecasts the NZD/USD exchange rate to hit 0.59 by December 2026 and 0.63 by June 2027, alongside a substantial rise in domestic interest rates. At the time of writing, the NZD traded near US$0.5606, up 0.14% on the day. However, September saw a 4.86% decline in the NZD, leaving significant ground to recover to meet Westpac's projections. Westpac's economist Michael Gordon warned of a 'wide gap between hopes and reality.'

Westpac anticipates the RBNZ cash rate to peak at 4% next year, following a 25 basis point rate hike in December. Higher interest rates would boost the return on holding the NZD, but tighter policy could also restrain growth and employment. The bank notes that the NZD's weakness is primarily due to the strength of the USD, with NZD/USD down nearly 5% since the start of September. The next key domestic test is the September-quarter inflation data on October 22, ahead of the RBNZ's decision on October 28.