1.6% Kiwi slump as RBNZ unexpectedly holds rates: Why December hike bets may fail to offer relief

The New Zealand Dollar fell by up to 1.6% against the US Dollar (USD). The Greenback benefited from an unexpected pause by the Reserve Bank of New Zealand (RBNZ), which kept its Official Cash Rate (OCR) at 2.75% following a narrow 4–3 vote, defying widespread market expectations of a 25-basis-point (bps) rate hike. The decline pulled NZD/USD towards the lower edge of its critical multi-month support zone at 0.5560/0.5550. The RBNZ indicated that further tightening may still be needed to counter rising fourth-quarter inflation. Markets are now weighing whether US Dollar strength will trigger a deeper technical breakdown in NZD/USD, or whether overstretched Fed interest rate expectations will limit further USD gains.

0.5560 Break Could Expose 0.5480 for NZD/USD, Societe Generale Warns

According to analysts at Societe Generale, NZD/USD has been driven to the lower edge of its multi-month trading range as the RBNZ's decision to hold the OCR at 2.75% puts the New Zealand Dollar under severe pressure. A failure by buyers to protect the critical 0.5560/0.5550 support zone would increase the risk of a prolonged downtrend 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."

Commerzbank Sees NZD Pressure From Dovish RBNZ Repricing, Limited USD Upside

High headline inflation is likely to force a December rate hike despite the RBNZ's surprise 4–3 vote to hold rates at 2.75%, according to Norman Liebke at Commerzbank. Money markets currently price in roughly four rate increases by next September. As those expectations are pared back, Liebke expects limited medium-term upside for the Kiwi. However, he also considers Fed pricing overextended, which should 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 Support Under Pressure

NZD/USD is testing the pivotal support zone at 0.5560/0.5550 after the RBNZ's surprise rate pause strengthened the US Dollar's relative position. According to Societe Generale, a break below this area could open a technical path towards 0.5480. Meanwhile, Commerzbank expects reduced expectations for RBNZ rate hikes to weigh on the Kiwi. The bank nevertheless argues that excessively hawkish Fed pricing will ultimately limit the US Dollar's scope for significantly further gains.

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