(Bloomberg) — New Zealand’s dollar is set to rise to the strongest in more than a year against the euro due to expectations the local central bank will outpace its European peer in raising interest rates, according to strategists.
The kiwi will climb as much as 3.2% against the euro over the next three months, Macquarie Bank Ltd. predicts, while Westpac Banking Corp. and Canadian Imperial Bank of Commerce are also bullish. The Reserve Bank of New Zealand will increase its benchmark rate by more than a percentage point over the next year, compared with about 75 basis points of tightening from the European Central Bank, based on overnight index swaps.
The widening gap in expected interest rates is making the kiwi more attractive at a time investors are rewarding higher-yielding currencies. Further gains are likely to hinge on whether New Zealand’s inflation remains persistent enough to justify additional RBNZ tightening, while the ECB left its key rate unchanged last week, pledging to monitor economic data over the near term.
“We can imagine EUR/NZD drifting lower toward the 1.90 level over the next three months as RBNZ rate hikes are delivered,” said Gareth Berry, a foreign-exchange strategist at Macquarie in Singapore. The pair last hit that level in June 2025, and ended last week at 1.96.
Trading activity in the New Zealand dollar has picked up in recent months as the currency has appreciated against most of its major peers, according to market participants. Traders are now looking at it against a range of other counterparts, not just the traditional US and Australian dollars.
To be sure, ECB officials are prepared to raise borrowing costs in September unless consumer-price pressures improve markedly, people familiar with the matter said. A recent spike in oil prices, driven by the Middle East conflict, has added to inflation risks and may convince policymakers to make another quarter-point increase, the people said.
Still, many analysts expect any September hike to mark the end of the ECB’s tightening cycle before attention shifts toward supporting growth, a backdrop they say should continue to weigh on the common currency.
“Given near term euro headwinds, amplified by the prospect of the ECB being forced to consider growth destructive rate cuts, points to EUR/NZD trading toward the May 2025 trough,” said Jeremy Stretch, a foreign-exchange strategist at CIBC in London.
The kiwi’s outlook is also being supported by signs New Zealand’s economy is strengthening. Manufacturing PMI and the Performance of Services Index have indicated activity is picking up, reinforcing the case for further RBNZ rate hikes. Consumer confidence data due this week will offer another insight into whether the recovery is broadening.
The EUR/NZD currency pair has fallen 2.5% this month, and Westpac expects its downtrend will continue.
“There’s potential for further downside over next month to the 1.93 area,” said Imre Speizer, a strategist at the bank in Auckland. “The RBNZ’s tightening cycle will likely be larger than the ECB’s.”
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