ING expects the Reserve Bank of New Zealand to keep rates unchanged on 27 May while adopting a hawkish tone, with the possibility of a surprise hike seen as underpriced. The bank anticipates updated projections that imply tightening from 3Q, and it forecasts two 25bp increases starting in July. It also projects 50bp of tightening in 2026, while stressing that the outlook is sensitive to energy market dynamics. NZD direction is described as largely driven by external forces rather than domestic factors.
Market pricing implies 21bp for July and 75bp by year-end, and ING expects RBNZ communication to reinforce that stance. If revised projections support that path, pricing could remain around three hikes by year-end, while a Middle East de-escalation is still expected to leave limited impetus to move expectations below two hikes. The bank’s NZD/USD view looks for a return above 0.60 in 2H26, conditioned on a relatively benign Gulf outcome, two RBNZ hikes and one Fed cut by year-end.
Risks and Market Reactions Around the RBNZ Meeting
With the Reserve Bank of New Zealand meeting on May 27, we see the primary risk as a surprise rate hike that the market is not fully pricing in. Although a hawkish hold is the most probable outcome, any unexpected tightening could cause a sharp rally in the Kiwi. Historically, surprise moves from the RBNZ, such as the one in April 2023, have triggered gains of over 1.5% in the NZD/USD within a day.
This uncertainty is reflected in the options market, where one-week implied volatility for the NZD has climbed to 12.5%, significantly above its recent average of 9.8%. We believe traders could consider buying short-dated options, like straddles, to profit from a large price swing in either direction following the announcement. Alternatively, selling volatility might be attractive if one believes the bank will simply deliver the expected hawkish hold, leading to a post-meeting calm.
Outlook and Trading Implications for NZD
We anticipate the RBNZ will use this meeting to signal a definitive rate hike for July, supported by persistent inflation which recently printed at 4.2% and a tight labor market with unemployment at 3.9%. The swap market is already pricing in 21 basis points for July, and we see an opportunity in positioning for this to become fully priced after the meeting’s statement. This could be done through interest rate swaps or by buying NZD futures.
Beyond the RBNZ, the NZD’s path will be shaped by global risk sentiment and monetary policy divergence with the US. While we expect the RBNZ to deliver at least two hikes this year, Fed funds futures are pricing a 60% chance of a Federal Reserve rate cut by September. This divergence supports a bullish stance on the NZD relative to the US dollar, making long NZD/USD positions attractive through the second half of the year.
