RBNZ Rate Decision: What to Watch for the NZD
As the Reserve Bank of New Zealand (RBNZ) prepares to announce its monetary policy decision, markets are poised for significant moves in the NZD. Since the last meeting, inflation pressures have eased slightly, with annual CPI growth slowing to 2.2% (vs. 2.3% forecast). While tradables and energy prices have contributed to the decline, non-tradables inflation has shown only gradual improvement. This sets the stage for a critical decision on how aggressively the RBNZ should cut rates to support growth while keeping inflation within the 1–3% target range.
Baseline Expectations: Easing Cycle to Continue
The consensus is for a 50bps OCR cut to 4.25%, with forward projections suggesting the OCR will reach 3.5% by the end of 2025. However, the real driver of NZD movement lies beyond the headline rate cut—the market will be laser-focused on the RBNZ’s forward guidance and tone, particularly regarding inflation trends, business confidence, and commodity prices.
- Key Projections: Any significant changes to the OCR trajectory for 2025 and beyond will likely set the tone for NZD sentiment.
- Inflation Viewpoint: How the RBNZ assesses progress on inflation will determine whether markets see a dovish or cautious central bank.
Dovish Outcomes: NZD Under Pressure
If the RBNZ signals a more aggressive easing path or heightened confidence in inflation remaining subdued, expect NZD weakness. Key scenarios to watch include:
- 75bps Rate Cut: A larger-than-expected cut would signal urgency in supporting growth and confidence in the inflation outlook. This outcome would likely trigger:
- NZD Selling: Heavy selling pressure at market.
- AUDNZD Buyers: The cross-pair would likely rally as the NZD weakens.
- 50bps Cut + Dovish Guidance: If the RBNZ maintains the expected cut but projects the OCR to fall below 3.25% for 2025, markets may interpret this as a dovish tilt. This would suggest:
- Inflation is well-contained, enabling further rate cuts.
- AUDNZD buyers entering the market on expectations of continued NZD underperformance.
Hawkish Outcomes: Resilience in the NZD
While a dovish outcome is widely anticipated, any surprises on the hawkish side could lead to NZD strength, defying broader bearish expectations:
- 25bps Rate Cut: A smaller-than-expected cut would signal that the RBNZ is more cautious about easing aggressively. This would imply:
- Concerns about inflationary risks or the need to preserve policy flexibility.
- Potential for AUDNZD sellers as the NZD strengthens.
- Upward OCR Projections: If the RBNZ raises the OCR projection to 3.75% (above the 3.5% projection from August), it would indicate a slower and more measured approach to easing, supporting the NZD. Markets would see this as:
- A signal of confidence in the economy’s ability to stabilize without aggressive rate cuts.
- Encouragement for AUDNZD sellers at market.
Key Takeaways for Traders
The RBNZ’s tone and forward guidance will be pivotal in shaping the NZD’s trajectory. While the headline rate cut may align with expectations, the details in the projections and statement will drive sentiment.
- Dovish Bias: A steeper rate cut path or lower OCR projections will likely accelerate NZD weakness.
- Hawkish Surprises: A smaller cut or upward adjustments to projections could provide near-term support for the NZD.
The meeting will set the tone for the NZD’s performance into 2024, with traders keenly eyeing the bank’s inflation confidence and its approach to balancing easing with long-term stability.