Synopsis:

ANZ maintains a neutral stance on NZD/USD heading into this week’s RBNZ meeting, with near-term downside risks stemming from global risk sentiment and elevated short positioning.

Key Points:

• NZD strength has been USD-driven:
  The recent gains in NZD/USD are largely due to broad USD weakness, not domestic fundamentals.

• RBNZ to cut, but market is already priced:
  A 25bp rate cut is fully priced in, matching ANZ’s forecast. Therefore, a cut alone is unlikely to push the NZD materially lower unless the tone is more dovish than expected.

• Risk-off sentiment dominates:
  Concerns about US tariff retaliation and economic slowdown are driving risk aversion, which could pressure NZD across G10 crosses.

• Positioning suggests limited downside follow-through:
  CFTC data shows elevated net short positioning in NZD/USD, potentially limiting further downside as markets are already positioned for weakness.

Conclusion:

ANZ sees limited scope for NZD upside near-term, with risks tilted to the downside due to global risk sentiment and potential US data weakness. However, because of already bearish positioning, any NZD losses may be modest, especially if the RBNZ avoids sounding overly dovish.