- The Reserve Bank of New Zealand is set to lower its key interest rate by 50 bps to 4.25% on Wednesday.
- The RBNZ is expected to front-load due to the economic recession and as inflation falls back into the target band.
- The New Zealand Dollar could see a big reaction to the RBNZ’s updated forecasts and Governor Orr’s press conference.
The Reserve Bank of New Zealand (RBNZ) will announce its interest rate decision on Wednesday at 01:00 GMT. The central bank is widely expected to cut the Official Cash Rate (OCR) by another 50 basis points (bps) from 4.75% to 4.25%.
A Reuters poll of 30 economists found 27 favoring a 50 bps rate reduction at the November policy meeting. The RBNZ cut the OCR by 25 bps during its August meeting and implemented an additional 50 bps reduction in October.
What to expect from the RBNZ interest rate decision?
Economists expect the RBNZ to front-load rate cuts due to the gloomy economic outlook and as inflation falls back into the central bank’s target range between 1% and 3%.
New Zealand’s economy skirted another recession after Gross Domestic Product (GDP) declined 0.2% in the second quarter (Q2) from the previous quarter’s revised 0.1% growth. Economists expected a 0.4% contraction in the reported period, while the RBNZ projected a 0.5% drop.
Meanwhile, NZ Stats showed on October 16 that New Zealand’s annual Consumer Price Index (CPI) rose 2.2% in Q3, aligning with market forecasts and marking a sharp slowdown from the 3.3% growth in Q2.
By front-loading, the RBNZ can move into less restrictive territory, alleviating the pressures of higher borrowing costs on households and businesses. Following its October meeting, the central bank said in the policy statement that “economic activity in New Zealand is subdued, in part due to restrictive monetary policy.”
With a 50 bps rate cut fully priced in, markets will pay close attention to the language of the Monetary Policy Statement (MPS) and the updated economic projections for fresh signals on future rate reductions.
How will the RBNZ interest decision impact the New Zealand Dollar?
Another downward revision to the OCR in the updated projections for this year and the next could reaffirm dovish expectations. The RBNZ currently forecasts the OCR at 4.92% in Q4 2024.
In this case, the New Zealand Dollar (NZD) will come under intense selling pressure, with sellers targeting levels unseen since November 2022 around 0.5750
The NZD could rally hard if the RBNZ surprises with a 25 bps rate cut or maintains the OCR forecasts. The NZD/USD could regain 0.5900 and beyond on an unexpected hawkish move.
Dhwani Mehta, FXStreet’s Senior Analyst, offers a brief technical outlook for trading the New Zealand Dollar on the RBNZ policy announcements: “The downside risks remain intact for the NZD/USD after a Death Cross was confirmed on the daily chart last Friday. Adding credence to the bearishness, the 14-day Relative Strength Index (RSI) stays vulnerable below the 50 level.”
“If buyers defy bearish pressures, the initial resistance is seen at the 21-day Simple Moving Average (SMA) at 0.5920, above which the 0.6000 round level will be tested. Further up, the confluence zone of the 50-day SMA, 100-day SMA and 200-day SMA near 0.6060 will be a tough nut to crack for them. Alternatively, failure to defend the October 2023 low of 0.5772 will threaten the November 2022 low of 0.5741,” Dhwani adds.
New Zealand Dollar PRICE This month
The table below shows the percentage change of New Zealand Dollar (NZD) against listed major currencies this month. New Zealand Dollar was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 3.84% | 2.78% | 1.34% | 1.25% | 1.48% | 2.30% | 2.75% | |
| EUR | -3.84% | -1.02% | -2.39% | -2.49% | -2.26% | -1.46% | -1.05% | |
| GBP | -2.78% | 1.02% | -1.39% | -1.48% | -1.26% | -0.45% | -0.07% | |
| JPY | -1.34% | 2.39% | 1.39% | -0.10% | 0.14% | 0.95% | 1.38% | |
| CAD | -1.25% | 2.49% | 1.48% | 0.10% | 0.22% | 1.05% | 1.43% | |
| AUD | -1.48% | 2.26% | 1.26% | -0.14% | -0.22% | 0.82% | 1.20% | |
| NZD | -2.30% | 1.46% | 0.45% | -0.95% | -1.05% | -0.82% | 0.38% | |
| CHF | -2.75% | 1.05% | 0.07% | -1.38% | -1.43% | -1.20% | -0.38% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the New Zealand Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent NZD (base)/USD (quote).
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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