The NZD has been one of the most affected currencies by the sudden spike in fuel prices, and it seems the RBNZ isn’t in a position to provide support. The economic underperformance before the outbreak of the war puts the central bank in a very awkward position. While many other central banks are positioned to hike to face off inflationary pressures, the (Reserve Bank of New Zealand) RBNZ might not have that option.
According to a media poll late last week, economists unanimously agree that the (Reserve Bank of New Zealand) RBNZ will not change the Official Cash Rate (OCR) at its Wednesday meeting. Future markets are pricing in the same result. Where the discrepancy arises in expectations for what comes after. Economists suggest that the central bank will remain hawkish and is likely to raise rates by the end of the year. But many analysts suggest the RBNZ could turn dovish, given the state of the economy.
No Fuel For the Recovery
For over a year, the RBNZ had been on an aggressive rate-cutting cycle as inflation came down, but more crucially, the economy came under significant pressure. New Zealand’s economic underperformance in 2025 was at odds with the global recovery trend, despite substantial monetary easing. There was hope that now that OCR was below both the Australia and the Fed, the economy could start to improve.
That hope came to an end in March, as Asian oil supplies were drastically reduced by the war in the Middle East. New Zealand is wholly dependent on energy imports. Unlike Australia, which produces energy but has to export and reimport to obtain refined products, New Zealand is at the end of the fuel export chain. That means it imports from other countries that also import, and will prioritise their own supply before reexporting on to New Zealand.
Markets Nervous Despite Policies
The Kiwi government has taken measures and could implement additional policies to mitigate the fallout from the energy crisis and reduce inflationary pressure. But that is unlikely to convince investors, at least while the war is going on, because they are worried the economy will underperform. This means selling the NZD in favour of other currencies. Even the AUD is under pressure despite the RBA raising rates.
Given the state of the economy, the (Reserve Bank of New Zealand) RBNZ has little room to raise rates to counter inflation, as economists suggest. But, analysts point out that the RBNZ could be forced to cut rates sooner than other central banks if the economic situation continues to deteriorate.
What to Look Out For
Traders will be looking closely at the RBNZ’s policy statement to see which of those options is most likely. But both could also be negative for the NZD, as the prospect of higher rates means the economy could underperform. It will be a keen balancing act for the (Reserve Bank of New Zealand) RBNZ to convey confidence in the economy without threatening to raise rates, which could support the currency.
Traders largely expect the decision to convey the same tone as Governor Anna Bremman used just a week earlier. She said that the central bank would “look through” the first-round effects of oil prices and warned of economic slack. A deviation from this message could move the markets.
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