A new chapter is upon us with the appointment of Dr Anna Breman as the incoming RBNZ Governor from December 1. Dr Breman comes with an impressive list of credentials from her most recent role as Deputy Governor of Sweden’s Central Bank, to experience in roles across the Swedish Ministry of Finance and the World Bank. She also holds a PhD in economics. And her appointment marks a historic milestone as the first female Governor of the Reserve Bank of New Zealand.

And in a literal case of “out with the old, in with the new,” current acting Governor Christian Hawkesby will conclude his time at the Reserve Bank when Dr Breman takes the reins.

Upon the news markets have already begun trying to pin where Dr Breman pitches her tent. Is she camp dove? Or camp hawk? We think such classifications and judgements are premature and for the most part are overly speculative.

In any case, what we’re most looking forward to is the push for clear communication and transparency that Dr Breman asserted in her first remarks following the announcement of her appointment.

Dr Breman’s start day of December 1 does mean she’ll commence after Monetary Policy decisions wrap up for the year, with the next RBNZ meeting not until February 2026. As such, we don’t think Dr Breman’s appointment holds any implication for the two remaining meetings this year. That said, monetary policy implications were always going to be limited given the RBNZ’s need for committee consensus. Also, outside of the change of guard, the data firmly points to the need for further easing.

Our call is unchanged: 75bps of cuts to 2.25% by the end of the year. Because there’s simply no other way to put it. The Kiwi economy is underperforming. It’s underperforming our already weak forecasts. And it’s underperforming our peers around the world.

Compared to June last year, the economy has shrunk a further 0.6%. That compares to growth of 1.8% in Australia, 2.1% in the US, 1.2% in the UK, and 1.5% over the EU. Naturally, our relative underperformance has seen the NZD weaken against most of the key crosses.

The Kiwi currency has come under downward pressure, with a late rally in rates from the RBNZ. After flip-flopping, again, the RBNZ is set to deliver more (and more) cuts to the cash rate. Relative to the US, both central banks are cutting. Relative to Australia, the RBNZ is cutting by more.

Against the Greenback, the Kiwi may trade with a downward bias from here. Because the 75bps of easing we expect the RBNZ to deliver this year is not yet fully priced into rates markets. However, to some extent, the move south is capped by the US Fed returning to the cutting party. In September, the Fed cut rates for the first time this year, and signalled another 50bps by year-end. Further Fed easing provides some upside support which could prevent the Kiwi from dipping back down to the April lows of 55c. But we wouldn’t be surprised to see the Kiwi with a 57-handle this year. Just as we’ve seen a delay to the Kiwi economy’s recovery, the return to 60c will also take more time.

Check out our latest FX tactical for an outlook on all other key currency pairs

Financial Markets

The comments below were provided by Kiwibank traders. Trader comments may not reflect the view of the research team.

In rates, consolidation was the theme

“NZ rates consolidated around a new lower post-GDP range and entered a typical pre-RBNZ holding pattern. The 25 vs 50bp debate for October preoccupying the market with strong arguments for both options which is reflected in current pricing of around 30bps. Given we are quite late in cutting cycle 50bs would seem unnecessary also putting a lot of weight on one lagged data point. On the other hand, it was a very weak data point. The other excitement was the announcement of the new RBNZ governor.

The divergence between Australia and NZ economies and respective interest rate markets continues to grow. Cross-market spreads are now at the most compressed level in a decade. The other overriding theme in rates was the US economy juggernaut that continues to roll on with a string of strong data prints. This has seen US 10 year yields back up to around 4.20%.” Matthew Crowder Balance Sheet Manager – Treasury.

In currencies, it was another tough week for the Kiwi dollar

“After already being under some pressure following the previous weeks disappointing Q2 GDP print, the Kiwi was again under pressure following the US GDP upward revision last week, which saw the US Dollar (DXY) lift considerably towards the top of its recent ranges to 98.60. The PCE prints for 2024 were also revised higher, which added further credence to Fed officials remaining cautious about cutting rates. Some of this pessimism around Fed cuts unwound a little on Friday, as the Core PCE print for September came in on expectations, unchanged from August at 2.9% y/y. But still the headwinds for the Kiwi remain. Now in the high 0.5700’s, with support at 0.5750 we may not see much upside above 0.5850 for the time being. The data just isn’t here on the ground to support it. With a 50bp cut in October now expected from various market participants, the interest rate differentials will continue to weigh on the Kiwi. The US non-farm payrolls print will be a key data point for currencies later in the week.

For the NZDAUD cross, we are now clinging to support at 0.8830, and by a hair following the slightly higher Aussie CPI print last week. The RBA decision tomorrow will be another key test, with any hawkish signs out of the RBA potentially sending the Kiwi into the 0.87’s territory where we may eventually test the 2022 low (0.8700).” Mieneke Perniskie – Senior Dealer, Financial Markets.

Weekly Calendar

• The RBA is in the spotlight this week, but we're not expecting any fireworks. The RBA is expected to hold steady, keeping the cash rate at 3.60%. The tone of the statement and RBA Governor Michelle Bullock's following press conference will be of most interest. Given the acceleration in inflation and a tight labour market, we expect the RBA to emphasise caution and a data-dependent approach to easing. Market traders have stripped out a full 25bps cut from pricing this year, and instead pushing it out to February next year.
• US non-farm payrolls is the main market event this week. Market consensus is for a 50k gain in jobs over September, with net hiring likely coming from leisure and hospitality. The unemployment rate is expected to hold at 4.3%, although risks are tilted to an upside surprise should we see a reversal to the recent decline in the participation rate.

See our Weekly Calendar for more.