Reserve Bank of New Zealand expected to deliver third straight rate cut as markets brace for NZ dollar volatility
Written by
Daily Currency Update
The Reserve Bank of New Zealand (RBNZ) is back in the spotlight today as markets await the conclusion of its November monetary policy meeting. Expectations are firmly centred on another cut to the Official Cash Rate (OCR), with most analysts anticipating a move from 2.5% to 2.25%. If delivered, this would mark the central bank’s third consecutive reduction, reinforcing its recent shift toward a more accommodative stance as it navigates cooling domestic demand and a challenging global backdrop. The New Zealand Dollar (NZD) is poised for a potentially sharp reaction once the announcement crosses the wires. Given the currency’s sensitivity to interest-rate differentials and shifting policy expectations, traders are bracing for volatility. The RBNZ has already surprised markets twice this year with back-to-back cuts: a standard 25-basis-point move in August, followed by an unexpected 50-basis-point reduction in October. These actions signalled a clear sense of urgency from the central bank, highlighting its desire to ensure inflation continues its journey back toward target while safeguarding growth. Heading into today’s meeting, market pricing suggests that another 25-bps cut is not just expected—it is fully priced in. Investors are now less focused on whether the RBNZ will cut and more interested in how the central bank will frame the path ahead. Any shift in the rate outlook, inflation forecasts, or guidance on economic conditions could influence whether markets interpret today’s decision as the end of the easing cycle or simply the latest step in a longer period of policy support. For the RBNZ, the balancing act remains delicate. Inflation has moderated, but pockets of price pressure persist, particularly in services. At the same time, domestic activity has softened, with households and businesses feeling the weight of past tightening. A gradual easing of policy could help stabilise demand, though the central bank will likely maintain a cautious tone to avoid signalling excessive confidence that inflation risks have fully faded. For the NZD, the tone of the RBNZ’s statement may matter even more than the size of the cut itself. A dovish tilt—hinting at further easing—could drag the currency lower, while a more neutral or data-dependent message might limit downside pressure. Traders will also watch for updates on global risks, including slowing growth in key trading partners, as these factors often play a meaningful role in shaping the RBNZ’s policy thinking. With expectations firmly set and volatility likely, today’s decision promises to be a pivotal moment for both the New Zealand Dollar and the broader market narrative surrounding the country’s economic outlook.Key Movers
Recent US economic data offered fresh evidence that inflation pressures continue to ease, strengthening the narrative of mild disinflation heading into the end of the year. The latest Producer Price Index (PPI) numbers painted a calm picture, with no major surprises for markets. Headline PPI rose 2.7% year over year, matching expectations, while core PPI, which strips out volatile food and energy components, slowed slightly to 2.6%. On a monthly basis, inflation appeared even more contained: headline PPI increased 0.3%, and core PPI came in at a modest 0.1%. Both readings were viewed as comfortably benign, reinforcing the idea that pipeline price pressures are gradually cooling. Retail data, however, provided a less encouraging snapshot of consumer behaviour. US Retail Sales for September rose just 0.2%, falling short of the 0.4% gain economists had anticipated. While still positive, the softer reading suggests that consumers may be becoming more cautious, particularly as borrowing costs remain high and savings buffers continue to thin. The report has led analysts to dial back expectations for fourth-quarter economic momentum, with many now anticipating a period of more moderate growth. Sentiment indicators also pointed to a shift in mood among American households. The Conference Board’s Consumer Confidence Index experienced a sharp drop in November, falling to 88.7 from 95.5 in the previous month. This decline reflects growing concerns about the economic outlook, personal finances, and the labour market. According to the Conference Board’s Chief Economist, Dana Peterson, all five components of the index weakened in the latest reading. Notably, the labour market differential—a measure comparing the share of households saying jobs are plentiful versus hard to get—deteriorated once again, suggesting that workers may be feeling less secure about job prospects. Peterson also highlighted that consumer expectations for the months ahead have become “notably more pessimistic,” a shift that could have meaningful implications for household spending. With sentiment softening and inflation easing, consumers appear increasingly wary of the economic landscape, and this collective caution may influence spending patterns as the holiday season approaches. Together, the latest inflation, retail, and sentiment data create a picture of an economy still growing but losing some of the strong momentum seen earlier in the year. For policymakers, the moderation in price pressures may provide comfort, while the weakening in consumer confidence could signal the need for vigilance as domestic demand shows signs of cooling. Markets, for their part, are likely to interpret this mix as supportive of a more patient Federal Reserve, keeping expectations for future policy moves firmly in focus.Expected Ranges
- NZD/USD: 0.5500 - 0.5700 ▼
- NZD/EUR: 0.4750 - 0.4950 ▼
- GBP/NZD: 2.3300 - 2.3500 ▲
- NZD/AUD: 1.1400 - 1.1600 ▼
- NZD/CAD: 0.7800 - 0.8000 ▲