Kiwi dollar rises after RBNZ delivers hawkish cut and signals end of easing cycle
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Daily Currency Update
The New Zealand dollar (NZD) advanced on Wednesday after the Reserve Bank of New Zealand (RBNZ) delivered a widely anticipated 25-basis-point interest rate cut, while simultaneously signalling that its easing cycle has effectively come to an end. The combination of a “hawkish cut” and clearer forward guidance boosted market confidence in the currency, setting the stage for potential NZD strength as the economy heads toward 2026. As expected, the RBNZ lowered the Official Cash Rate (OCR) by 25bps, bringing it to 2.25%, a move that had been fully priced in by financial markets. The Monetary Policy Committee voted 5–1 in favour of the cut, with one member preferring to keep rates unchanged, reflecting lingering internal caution about the pace of policy easing. Importantly, the central bank noted that the OCR now sits at the lower bound of its newly assessed neutral range of 2.2% to 4.0%, suggesting limited room for additional cuts without risking a renewed imbalance in inflation and economic stability. The RBNZ’s policy statement emphasised that further easing is unlikely in the near term unless the economic outlook deteriorates materially. While headline inflation has moderated significantly from its earlier peaks, the RBNZ highlighted that services inflation remains elevated and wage growth, though easing, still exceeds levels consistent with its long-run inflation target. These factors have contributed to the Bank’s decision to adopt a more cautious posture, even as it delivers this final cut. Market participants interpreted the message as a clear indication that the RBNZ is shifting toward a period of policy stability, a stance that tends to favour currency appreciation. The NZD strengthened against major peers following the announcement, with traders pricing in a reduced likelihood of further rate reductions over the coming year. Expectations for the next move have already begun tilting toward a potential rate hike late in 2025 or early 2026, assuming inflation and growth remain on their projected paths. The central bank also expressed confidence that the New Zealand economy is moving into a more balanced phase. Domestic demand has cooled but remains resilient enough to avoid recession risks, while the labour market—though softer than in recent years—continues to operate at levels consistent with full employment. The RBNZ noted that stabilising economic conditions should help return inflation sustainably to the middle of its target band, supporting its decision to pause further easing. For currency markets, the key takeaway is that the RBNZ has drawn a line under its rate-cutting cycle sooner than some global peers. This divergence, along with the Bank’s firmer tone, offers fundamental support for the NZD. If global risk sentiment remains constructive and New Zealand’s economic indicators continue to stabilise, strategists see room for the currency to appreciate gradually through 2025 and into 2026.Key Movers
The US dollar (USD) remains under pressure as mounting evidence of an economic slowdown continues to shift market sentiment firmly toward expectations of near-term Federal Reserve (Fed) easing. The US Dollar Index (DXY) is holding near 99.80 at the time of writing, extending its recent declines as investors increasingly anticipate that the Fed will deliver a 25-basis-point rate cut in December. According to the CME FedWatch tool, the probability of such a move has surged to more than 84%, a dramatic rise from roughly 50% just one week earlier. A string of softer US economic data has driven this repricing. Producer Price Index (PPI) figures for September revealed further moderation in underlying price pressures, with core PPI easing in line with the recent disinflation trend visible across several sectors. While headline inflation remains above the Fed’s long-run target, the sustained cooling in producer-level price growth suggests that pipeline pressures are abating, reducing the urgency for the central bank to maintain a restrictive stance. Consumer activity—long the engine of US economic resilience—also shows signs of fatigue. Retail Sales for the latest month rose only 0.2% month-on-month, a notable deceleration from earlier readings that reflected stronger household demand. Several categories saw outright declines, indicating that elevated borrowing costs and fading excess savings are weighing more heavily on consumption patterns. Economists note that while the US consumer remains relatively stable, momentum is clearly slowing. At the same time, household sentiment has deteriorated sharply. The Conference Board’s Consumer Confidence Index dropped to 88.7 in November, marking one of its weakest levels in recent years. The decline was broad-based, capturing heightened anxieties about the economic outlook, inflation, and labour-market conditions. The expectations component, which gauges views about the next six months, fell particularly hard—a development often associated with caution around discretionary spending and major purchases. The combination of easing inflation, softer consumer activity, and weakening sentiment has strengthened the argument for a December policy adjustment. Fed officials have recently acknowledged that financial conditions have tightened considerably through market channels, even without additional policy actions. With growth indicators cooling and price pressures retreating, a number of policymakers have signalled a greater willingness to consider rate cuts if the data trajectory continues. For the US dollar, the shift in rate expectations has been decisive. Lower yields and diminishing carry appeal have pushed the currency lower against major peers, with traders positioning for a potentially more dovish Fed stance heading into 2025. Should upcoming economic releases reinforce the slowing trend, the USD may remain on the defensive in the near term, with broader direction likely to hinge on incoming inflation data and the Fed’s communication in the weeks ahead.Expected Ranges
- NZD/USD: 0.5600 - 0.5800 ▲
- NZD/EUR: 0.4800 - 0.5000 ▲
- GBP/NZD: 2.3150 - 2.3350 ▼
- NZD/AUD: 1.1350 - 1.1550 ▲
- NZD/CAD: 0.7900 - 0.8100 ▲