The Asian session was loaded today, with Australia CPI and the Reserve Bank of New Zealand (RBNZ) keeping the cash rate unchanged at 5.5%, sending NZD to USD rate lower. Markets expectations of a rate hike. This announcement led to a significant decline in the New Zealand dollar against major currencies, including the US dollar.

The RBNZ’s statement was perceived as more dovish than anticipated, as it gave no indication of considering rate hikes and emphasized confidence in the current level of the Official Cash Rate (OCR) to restrict demand. This sent NZD/USD 60 pips lower initially and the decline has been continuing today, with the New Zealand dollar falling around 100 pips in total, while other currencies have rebounded against the USD.

Additionally, the RBNZ revised its forecast for the cash rate peak lower to 5.6% and foresees a rate cut in mid-2025, effectively reducing the likelihood of further tightening. Although there was some discussion of a rate hike during the meeting, it was quickly dismissed according to RBNZ Governor Orr.

As a result, the New Zealand dollar remained under pressure, with NZD/USD trading around 0.6090, showing minimal recovery since the announcement. Overall, the RBNZ’s decision and statement contributed to the downward movement in the New Zealand dollar during the Asian session.

Reserve Bank of New Zealand’s (RBNZ) Cash Rate Decision and Statement:

• RBNZ decided to leave the cash rate unchanged at 5.50%.
• RBNZ forecasts the official cash rate to be at 5.59% in June 2024, lower than the prior projection of 5.67%. Additionally, the cash rate is expected to be at 5.47% in March 2025, down from the previous forecast of 5.56%.
• RBNZ anticipates the trade-weighted index (TWI) to be around 71.5% in March 2025, compared to the prior forecast of 70.7%. Annual CPI is projected to be at 2.6% by March 2025, higher than the previous estimate of 2.4%.
• The OCR is deemed necessary to remain at a restrictive level for a sustained period to curb demand. While the New Zealand economy has generally evolved as anticipated, capacity pressures have eased, allowing interest rates to stay restrictive.
• Despite a decline in core inflation and business inflation expectations, they remain above the 2 percent mid-point of the target band. The committee is cautious about absorbing further upside inflation surprises.
• Ongoing restrictive monetary policy settings are deemed necessary to counter the risk of rising inflation expectations, given the significant easing of capacity pressures over the past year.

NZD/USD Live Chart