The New Zealand dollar still has a long way to go

Investing.com – The New Zealand dollar fell after the Bank of New Zealand cut interest rates earlier this week, and UBS expects the currency to further weaken 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 in line with market expectations.

The cut was triggered by a planned monetary policy review, meaning no press conference or statement was held, analysts at UBS said in an Oct. 9 note.

“But, we think the short accompanying press release improves the prospects for a further jumbo cut in November (50 bps),” the Swiss bank said. “Beyond this, we expect a sequential decline in the cash rate in 2025 (25bp of easing per quarter), with the cash rate reaching 3.25% by the end of 2025 – the level broadly in line with the central bank’s estimate of neutral .”

Instead, the Federal Reserve has begun to push back on expectations of big interest rate cuts, and recent data validates its stance. Importantly, global rate market participants have priced in the more extreme easing forecasts from a few weeks ago.

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

At 05:20 ET (09:20 GMT), NZD/USD was up 0.2% at 0.6076, having fallen more than 2% over the past week.