Kiwi dollar falls for third straight session as US dollar firms and surprise RBNZ cut weighs
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Daily Currency Update
The New Zealand dollar (NZD) extended its decline against the US dollar (USD) for the third consecutive session on Thursday, with the NZD/USD pair trading near US$0.5740 during the Asian hours. The Kiwi remains under pressure amid a combination of a stronger USD and a dovish surprise from the Reserve Bank of New Zealand (RBNZ), which has shifted the domestic monetary outlook firmly to the downside.A key driver behind the pair’s weakness is the broader recovery in the Greenback, which continues to gain traction ahead of a highly anticipated speech by Federal Reserve Chair Jerome Powell, scheduled for later in the day. Investors are closely watching for any guidance on the future path of US interest rates, especially amid persistent inflation concerns and mixed economic data out of the United States.
The downward pressure on the NZD has been exacerbated by the RBNZ’s unexpected decision to cut the Official Cash Rate (OCR) by 50 basis points on Wednesday, bringing it down to 2.50%, its lowest level since July 2022. Markets had been pricing in a smaller, 25 basic point cut, and the larger-than-expected move has significantly shifted sentiment toward the Kiwi. The central bank cited weakening economic growth and easing inflationary pressures as reasons for the aggressive cut, suggesting a more accommodative stance may be warranted in the near term. This has led market participants to speculate that another 25 basis point cut could be on the table at the RBNZ’s next policy meeting in November.
The divergence in policy direction between the RBNZ and the Federal Reserve is adding further downside momentum to the NZD/USD pair. While the Fed has remained cautious about declaring an end to its tightening cycle, the RBNZ’s more dovish approach suggests that interest rate differentials will likely continue to favour the USD in the short to medium term. Technically, the pair is approaching key support levels, and continued pressure from the USD side, particularly if Chair Powell maintains a hawkish tone, could push NZD/USD toward new multi-month lows. Conversely, any sign of Fed caution could offer the Kiwi a temporary reprieve, though fundamental headwinds remain significant.
Looking ahead, traders will be watching Powell’s remarks closely, while also keeping an eye on further developments in New Zealand’s economic outlook and upcoming domestic data releases. For now, however, the path of least resistance for NZD/USD remains to the downside.
Key Movers
The US dollar may come under pressure in the coming weeks as signs grow that the Federal Reserve could begin cutting interest rates sooner than previously expected. Minutes from the Federal Open Market Committee’s (FOMC) September meeting, released earlier this week, revealed that many policymakers are now considering additional rate cuts before the end of the year. According to the CME FedWatch Tool, market participants are pricing in a 92.5% chance of a 25 basis point rate cut at the Fed’s October meeting, and a 78% chance of another cut in December.This marks a shift in sentiment, as previous expectations leaned more toward holding rates steady to fight inflation. In the meeting summary, Fed officials expressed concerns about the broader economic outlook. While inflation has been slowing, several members pointed out that financial conditions may not be tight enough to bring inflation down sustainably. Some also noted that the risk of rising unemployment has increased, suggesting the need for a more balanced approach to monetary policy.
Looking ahead, the Fed signalled it could continue easing policy through the remainder of 2025 if economic conditions warrant it. This potential shift in stance has caused investors to re-evaluate their positions in the currency and bond markets, as a more dovish Fed typically weighs on the US dollar.
Adding to the uncertainty is the ongoing US government shutdown, which has now entered its ninth day. The political deadlock in Washington shows no sign of resolution, with the Senate on Wednesday rejecting rival funding proposals from both Republicans and Democrats. The prolonged shutdown raises concerns about its impact on government services, economic data releases and overall market confidence. For traders and investors, this combination of potential rate cuts and political gridlock is a reminder to remain cautious.
Market volatility could increase in the coming days as attention turns to upcoming economic data and comments from key Fed officials, including Chair Jerome Powell.
Expected Ranges
- NZD/USD: 0.5600 - 0.5800 ▼
- NZD/EUR: 0.4850 - 0.5050 ▼
- GBP/NZD: 2.3100 - 2.3300 ▲
- NZD/AUD: 1.1300 - 1.1500 ▼
- NZD/CAD: 0.7900 - 0.8100 ▲