Kiwi falls 1.6% after surprise RBNZ pause as December rate hike bets may offer little support

The Reserve Bank of New Zealand (RBNZ) kept its Official Cash Rate (OCR) at 2.75%, voting narrowly by 4–3 for an unexpected pause despite widespread market expectations of a 25-basis-point (bps) increase. The US Dollar (USD) benefited as the New Zealand Dollar dropped by as much as 1.6% against the Greenback, pulling NZD/USD towards the lower edge of a key multi-month support zone at 0.5560/0.5550. Further tightening may still be needed to address rising fourth-quarter inflation, the RBNZ signalled. Markets are now assessing whether a stronger US Dollar will drive a deeper technical breakdown in NZD/USD, or whether overstretched expectations for Fed interest rates will limit additional USD gains.

NZD/USD faces decline towards 0.5480 if 0.5560 breaks, Societe Generale warns

According to analysts at Societe Generale, leaving the OCR at 2.75% has placed the New Zealand Dollar under considerable pressure, pushing NZD/USD straight to the bottom of its multi-month trading range. A failure by buyers to protect the crucial 0.5560/0.5550 support zone would increase the risk of a prolonged decline towards multi-year lows.

"NZD/USD is challenging the lower boundary of its multi-month range at 0.5560/0.5550, a crucial support zone... A short-term rebound cannot be ruled out; however, the recent pivot high at 0.5710 could act as resistance... If the pair fails to defend the support at 0.5560/0.5550, the risk of a deeper downtrend would increase... In such a scenario, the next objectives could be located at the April 2025 low near 0.5480 and projections at 0.5420."

NZD faces pressure from dovish RBNZ repricing as USD upside remains limited, Commerzbank says

In the view of Norman Liebke at Commerzbank, elevated headline inflation is likely to force a December rate increase, despite the RBNZ's surprise 4–3 vote to hold rates at 2.75%. Money markets are pricing in roughly four increases by next September. Liebke expects those expectations to be pared back, leaving little scope for medium-term Kiwi gains, although excessive Fed rate expectations should also keep a US Dollar rally in check.

"The Reserve Bank of New Zealand left its policy rate unchanged at 2.75%, contrary to market expectations... The Kiwi temporarily fell by 1.6% against the USD to almost 0.56. Over the medium term, however, we do not see much upside for the NZD either, given what we consider overly hawkish market expectations... While we continue to expect a rate hike in December, we are more sceptical than the market about the medium-term outlook. As rate-hike expectations are pared back, the Kiwi is therefore likely to weaken. At the same time, we also consider current expectations for the Fed to be too hawkish, which should limit the extent of any NZD depreciation."

NZD/USD tests crucial support as US Dollar strengthens

By unexpectedly holding rates steady, the RBNZ has strengthened the US Dollar's relative position and brought NZD/USD to a test of the pivotal support zone at 0.5560/0.5550. According to Societe Generale, a break below this area risks clearing a technical path towards 0.5480. Meanwhile, Commerzbank expects a dovish reassessment of RBNZ rate increases to put pressure on the Kiwi. The bank nevertheless argues that excessively hawkish Fed pricing will ultimately restrict the US Dollar's scope for significant further gains.

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)