Kiwi dollar drifts lower ahead of RBNZ policy decision
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Daily Currency Update
The New Zealand dollar (NZD) extended its decline against the US dollar on Tuesday, with NZDUSD slipping toward 0.5810 during the European trading session. The currency pair continues to consolidate below the US$0.5840 resistance level, reflecting growing investor caution ahead of a key policy announcement from the Reserve Bank of New Zealand (RBNZ), due on Wednesday. Markets are largely pricing in another interest rate cut, with the central bank expected to lower its Official Cash Rate (OCR) from the current level of 3.00% as it seeks to cushion the impact of a weakening domestic economy. If delivered, this would represent the RBNZ’s eighth consecutive rate cut since initiating its easing cycle in August 2024—an aggressive policy shift aimed at reviving growth amid deteriorating macroeconomic conditions. While a 25-basis-point reduction to 2.75% remains the base case for many analysts, a portion of the market is positioning for a larger 50-basis-point move to 2.50%. This reflects increasing concern over the depth of New Zealand’s economic slowdown and the central bank’s urgency to act decisively. The choice between a moderate and more forceful cut will likely hinge on the RBNZ’s assessment of recent economic data and the outlook for inflation and employment. Incoming indicators have painted a mixed but generally downbeat picture. Economic growth has slowed considerably, with quarterly GDP readings undershooting forecasts and pointing to weak consumer spending and business investment. Business confidence surveys remain subdued, suggesting limited appetite for expansion or hiring, while job market data points to a gradual softening in employment conditions. Wage growth has also moderated, further dampening household purchasing power. On the inflation front, price pressures have eased in recent months, with headline inflation now comfortably within the RBNZ’s 1–3% target band. This reduction in inflationary risk has given the central bank more room to manoeuvre, allowing it to shift its focus toward stabilising economic growth and preserving labour market resilience without stoking inflation fears. Market participants will be paying close attention not just to the rate decision itself, but also to the tone and content of the RBNZ’s accompanying statement. Forward guidance from Governor Adrian Orr will be especially important in shaping expectations for future policy moves. Any dovish signals, particularly hints at the possibility of further cuts in the coming months, could exert additional downward pressure on the NZD.Key Movers
At the time of writing, the US Dollar Index (DXY), which measures the Greenback’s performance against a basket of six major currencies, is up 0.25%, trading near the 98.35 level. The modest rise reflects a temporary uptick in demand for the US dollar; however, broader upside remains limited as markets continue to price in a dovish policy outlook from the Federal Reserve, coupled with concerns over a potential US government shutdown. Expectations for Fed rate cuts have gained momentum in recent weeks, driven by signs of a cooling labour market and steady consumer inflation expectations. Slowing job growth, rising unemployment claims, and softer wage pressures have all contributed to the view that the Fed may be nearing the end of its tightening cycle—or even preparing to pivot to rate cuts in the coming months. According to the CME FedWatch Tool, futures markets now assign an 81.5% probability that the Federal Reserve will lower interest rates at both of its remaining policy meetings in 2025. This marked shift in rate expectations reflects increasing confidence that inflation is under control, and that the central bank may now prioritise supporting growth and employment amid a weakening macroeconomic backdrop. In addition to dovish Fed bets, political gridlock in Washington has emerged as another headwind for the US Dollar. The risk of a prolonged government shutdown—triggered by budgetary standoffs in Congress—raises uncertainty around fiscal policy and could weigh on overall investor sentiment. A shutdown would disrupt key government services and data releases, potentially complicating the Fed’s decision-making process and reinforcing the case for caution. Taken together, these factors are expected to keep the US dollar’s rally in check, even as it posts short-term gains on safe-haven flows or relative strength against other major currencies. Going forward, traders will closely monitor upcoming US labour and inflation reports, as well as any developments in fiscal negotiations, for further clues on the Fed’s policy trajectory and the dollar’s direction.Expected Ranges
- NZD/USD: 0.5700 - 0.5900 ▼
- NZD/EUR: 0.4900 - 0.5100 ▼
- GBP/NZD: 2.3050 - 2.2350 ▲
- NZD/AUD: 1.1250 - 1.1450 ▼
- NZD/CAD: 0.8000 - 0.8200 ▲