The New Zealand dollar edged lower against the US dollar during Asian trading hours on Tuesday (September 1), currently trading around 0.5900, near its lowest level since August 20. Despite market consensus that the Reserve Bank of New Zealand (RBNZ) will raise interest rates by 25 basis points in September, the New Zealand dollar has not received a significant boost, and the exchange rate remains hovering near recent lows. Westpac expects the RBNZ to raise rates by 25 basis points to 2.75% in its monetary policy statement on September 2, a consensus expectation that is likely to pass unanimously. It anticipates the OCR to reach 3% by year-end, peaking at around 3.3% (consistent with its May forecast), and maintains a data-dependent ambiguity regarding whether to raise rates further in October. Westpac believes the probability of both hawkish (suggesting rate hikes in October and December) and dovish (suggesting a pause) scenarios is around 10-15%. Westpac's Ekhold believes the strategy of restoring the OCR to around 3% by year-end is clear and uncontroversial, but high core inflation suggests that further rate hikes may be needed in 2027.

Westpac: A September rate hike to 2.75% is a foregone conclusion; October's path depends on data.

Westpac expects the Reserve Bank of New Zealand (RBNZ) to raise interest rates by 25 basis points to 2.75% in its September 2nd monetary policy statement, with a likely unanimous vote. The bank believes its strategy of restoring the Official Cash Rate (OCR) to approximately 3% by the end of the year is clear and uncontroversial, projecting an OCR of 3% by year-end and a peak of around 3.3% (consistent with its May forecast). Regarding a further rate hike in October, Westpac expects the RBNZ to maintain a data-dependent and ambiguous stance. The probabilities of both a hawkish scenario (clearly implying rate hikes in both October and December) and a dovish scenario (implying a pause) are approximately 10-15%. Westpac's Ekhold noted that core inflation remains too high, meaning further rate hikes may still be needed in 2027. Overall, a September rate hike is seen as a necessary step to remove some stimulus, but the subsequent path is highly dependent on upcoming economic data. The RBNZ will avoid giving overly explicit forward guidance to preserve policy flexibility.

Data Background: The economy is performing as expected, and financial conditions are tightening.

Since May, New Zealand's GDP and labor force data have been close to expectations. The unemployment rate was 5.6% (slightly higher than the Reserve Bank of New Zealand's previous forecast of 5.4%), and the overall annual inflation rate was 4.1% (lower than the forecast of 4.2%), with inflation expectations falling back to pre-oil price shock levels. These data generally support the Reserve Bank's planned policy normalization. At the same time, domestic financial conditions have tightened somewhat – 1-year and 2-year fixed mortgage rates have risen by about 35 basis points, and the New Zealand dollar trade-weighted index is also higher than the May assumption. These changes may influence the Reserve Bank of New Zealand's updated assessment of current financial conditions. A hawkish tone in the Reserve Bank's statement could boost the New Zealand dollar; a dovish tone could limit gains. If the policy statement on September 2 confirms a rate hike to 2.75% and maintains a data-dependent approach, the New Zealand dollar is expected to hold the 0.5900 support level and potentially continue to rise.

Summarize

Westpac Bank expects the Reserve Bank of New Zealand (RBNZ) to raise interest rates to 2.75% in September as a certainty, with October's rate path dependent on data. The year-end OCR is projected at 3%, peaking at around 3.3%. Both hawkish and dovish scenarios have a probability of around 10-15%. Economic data is close to expectations, and financial conditions are tightening. If the RBNZ raises rates to 2.75% as expected and maintains its data-dependent stance, the New Zealand dollar is expected to stabilize above 0.5900 and begin a rebound. (NZD/USD daily chart, source: EasyForex) At 15:12 Beijing time, the NZD/USD exchange rate was 0.5906/07.