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The RBNZ cut the OCR to 3% and signalled more cuts ahead, with two members favouring a 50bp move. The dovish deviation has hammered the New Zealand dollar.
- OCR cut 25bp to 3%, track lowered sharply to 2.5% trough.
- Two members voted 50bp, underscoring dovish shock.
- Q2 domestic growth characterised as “stalled”.
- NZD/USD breaks key support; AUD/NZD rallies from 200DMA.
RBNZ Summary
The RBNZ cut New Zealand’s cash rate to 3% in August and lowered its rate track forecast substantially, signalling that multiple rate cuts beyond those already delivered may be needed to get the domestic economy moving. Two committee members voted for a supersized 50 basis point reduction, delivering an undeniably dovish message that went far beyond market expectations. The New Zealand dollar plunged.
When the (RBNZ) Doves Fly
Source: RBNZ
As flagged in our preview note, the bank’s updated rate track—forward guidance on where it sees the cash rate heading—was lowered sharply relative to three months ago, continuing the pattern of sequentially reducing where it sees interest rates bottoming this cycle.
The new track sees the cash rate trough at 2.5% in the March quarter next year before the next tightening cycle is expected to begin in early 2027. That’s a significant departure from six months ago when the RBNZ saw rates bottoming at 3% or higher.
Two Members Vote for Supersized Cut
The committee vote reinforced the dovish message, with two members favouring a 50bp move to take the cash rate to 2.75%. The actual vote was on options of 25 or 50bp, rather than holding steady, highlighting just how far the mindset has shifted since the last cut when one member voted to keep policy unchanged.
“New Zealand’s economic recovery stalled in the second quarter of this year,” the RBNZ statement read. “Spending by households and businesses has been constrained by global economic policy uncertainty, falling employment, higher prices for some essentials, and declining house prices.”
On inflation, it noted that with “spare capacity in the economy and declining domestic inflation pressure, headline inflation is expected to return to around the 2 percent target midpoint by mid-2026.”
Short-End Rates Surge, Kiwi Curve Bull Steepens
Make no mistake; today’s outcome was far more dovish than anticipated, sending short-dated NZ bond yields tumbling. The Kiwi sovereign curve bull steepened, as expected when a central bank signals more stimulatory policy settings ahead.
Source: TradingView
Swaps traders have recalibrated where they see the cash rate bottoming, now favouring 2.5%—consistent with our long-held guidance. The next cut is fully priced for November, with a second likely by early 2027, both after the release of quarterly inflation reports. Given the visible and hidden labour market slack in New Zealand, there’s a risk the cash rate may have to go even lower than swaps currently price.
Source: Bloomberg
NZD/USD Slices Through 200DMA
The dovish RBNZ shift has delivered major technical damage to NZD/USD, with the pair slicing through horizontal support at .5850 and the key 200-day simple moving average. Should that break hold, little technical support exists until the April lows.
The 50% and 78.6% Fibonacci levels of the April–July bullish move at .5804 and .5622 are now on the radar for shorts. The 200-day moving average may now act as resistance, with .5850 the next test for bulls above that.
Both RSI (14) and MACD are providing definitive bearish signals on momentum, favouring selling rallies and downside breaks.
Source: TradingView
AUD/NZD Flies Higher
AUD/NZD has jackknifed higher following the rate decision, with the price exploding from the 200-day moving average to take out offers above 1.0990 before stalling at resistance at 1.1050. That’s the first topside level of note, with 1.1100 and 1.1150 the next after that. On the downside, 1.0990 may now revert to offering support. The 200-day moving average and 1.0950 may also flush out buyers, should the price return there.
Momentum is with the bulls, favouring playing the Antipodean cross from the downside.
Source: TradingView