NZD/USD holds positive ground above 0.5950 after RBNZ cuts rate to 3.25%
- NZD/USD strengthens to near 0.5965 in Wednesday’s Asian session, up 0.20% on the day.
- The RBNZ slashed its OCR by 25 bps to 3.25% from 3.5% at its May meeting.
- US CB’s Consumer Confidence Index rose to 98.0 in May vs. 86.0 prior.
The NZD/USD pair gains ground to around 0.5965 during the Asian trading hours on Wednesday. The New Zealand Dollar (NZD) edges higher against the US dollar (USD) after the Reserve Bank of New Zealand (RBNZ) interest rate decision. Traders will shift their attention to the Minutes of the Federal Open Market Committee (FOMC), which is due later on Wednesday.
As widely expected, the RBNZ decided to lower the Official Cash Rate (OCR) by 25 basis points (bps) to 3.25% from 3.5% after concluding the May policy meeting on Tuesday. This marks the sixth consecutive meeting for rate cuts. The Kiwi trims losses in an immediate reaction to the RBNZ interest rate decision.
According to the Minutes of the RBNZ interest rate meeting, inflation is within the target band, and the committee is well-placed to respond to both domestic and international developments to maintain price stability over the medium term. The New Zealand central bank projected the OCR to be at 3.12% in September 2025 and at 2.87% in June 2026, lifting bets for more rate reductions.
On the other hand, the upbeat US economic data on Tuesday might lift the USD and cap the upside for the pair. The US Consumer Confidence Index rose to 98.0 in May from 86.0 (revised from 85.7), the Conference Board revealed on Tuesday. Additionally, US Durable Goods Orders declined by 6.3% in April, compared to a 7.6% increase in March (revised from 9.2%). This figure came in stronger than the -7.9% expected.
RBNZ FAQs
The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are achieving and maintaining price stability – achieved when inflation, measured by the Consumer Price Index (CPI), falls within the band of between 1% and 3% – and supporting maximum sustainable employment.
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation is above target, the bank will attempt to tame it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken NZD.
Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ’s goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration in inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.
In extreme situations, the Reserve Bank of New Zealand (RBNZ) can enact a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim to increase the domestic money supply and spur economic activity. QE usually results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the objectives of the central bank. The RBNZ used it during the Covid-19 pandemic.
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