Kiwi dollar, market rates fall as RBNZ chief warns financial conditions tightening

The New Zealand dollar and key market rates fell on Monday after its new central bank chief warned financial market conditions had tightened in recent weeks, leading investors to pare back rate hike expectations for next year.

Anna Breman, who took on the top job at the Reserve Bank of New Zealand just this month, said financial market conditions had tightened since the November decision, when the central bank surprised investors by signalling the easing cycle was over.

“As always, we are closely monitoring wholesale market interest rates and their effect on households and businesses,” said Breman in a statement on Monday.

Two-year swap rates, a key benchmark for lenders setting mortgage rates, hit a nearly five-month top of 3.1072% on Monday but that was quickly reversed and they were last down 4 basis points at 3.0179%. Two-year bond yields fell 6 bps to 3.33%, having hit a six-month high of 3.41% earlier in the day.

The kiwi dollar fell 0.4% to $0.5778, marking the third straight session of declines.

Investors pared back the chance of more rate hikes next year, with the first move not fully priced in until September.

New Zealand is expected to provide a mid-year budget update on Tuesday and will also release third-quarter GDP data on Thursday where forecasts are for a healthy 0.9% rate of expansion in the last quarter.

That follows a 0.9% contraction in the second quarter, suggesting the economy is picking up pace after aggressive rate cuts.

The Aussie slipped 0.1% to $0.6648 on Monday, having edged up 0.2% last week.

It is slowly drifting away from a three-month top of $0.6685 hit last Wednesday after the Reserve Bank of Australia flagged a risk of policy tightening as inflation surged after three rate cuts this year. Australia’s Labor government is expected to unveil its mid-year budget update on Wednesday.

Treasurer Jim Chalmers has said the government will not extend household electricity rebates when they expire at the year end as underlying budget positions deteriorate amid spending pressures.

Elsewhere in the market, the focus is on the delayed US jobs data due on Tuesday, where any unexpected weakness could lift bets of more policy easing next year and weigh on the US dollar.

Forecasts are centred on a small 40,000 rise in employment, while the jobless rate likely held steady at 4.4%.

Research by UBS showed that in prior central bank cycles where there were significant divergences between the Reserve Bank of Australia and US Federal Reserve policy moves, the Australian dollar appreciated very sharply by 10% to 40%.

“The AUD in 2026 is expected to be at the top of the G10 carry rankings,” said George Tharenou, an economist at UBS. “UBS FX strategy see upside risk for the AUD/USD, with the risk that gains are extended to 0.69 in the near-term.”