New Zealand Dollar tumbles as RBNZ cuts rates

The New Zealand dollar is down 1% on Wednesday, after the Reserve Bank lowered interest rates today. NZD/USD is trading at 0.6017 in the European session at the time of writing.

RBNZ lower rates for first time in four years

The Reserve Bank of New Zealand had investors on edge right up to the wire of today’s rate announcement. It was unclear whether the RBNZ would continue to hold rates or take the leap and cut rates for the first time since March 2020. In the end the central bank reduced the cash rate by 25 basis points to 5.25%.

The RBNZ statement said that inflation expectations, headline and core inflation “are moving consistent with low and stable inflation”. The statement added that although services inflation remains high it is expected to continue to decline and CPI is expected to remain around the 2% midpoint of the 1-3% target in the foreseeable future.

The RBNZ signaled that it plans to continue cutting rates, with its forward guidance suggesting once more cut prior to the end of the year and three or more cut by mid-2025. This was a far more aggressive projection than in May, when the RBNZ said that initial rate cut was unlikely before mid-2025. The RBNZ minutes noted that “the economy is contracting faster than anticipated”.

The message from today’s meeting is that the central bank is satisfied with the inflation picture and is ready to cut rates aggressively, which is a significant shift in policy. The New Zealand dollar has reacted with losses and fell as low as 1.2% earlier today, erasing the gains seen on Friday.

NZD/USD technical

• NZD/USD has pushed below support at 0.6059 and is testing support at 0.6036. Next, there is support at 0.5994.

• There is resistance at 0.6101 and 0.6124.