Kiwi Dollar Gains After RBNZ Rate CUT! Why?

New Zealand Dollar Surges Despite RBNZ Rate Cut: What’s Driving the Bullish Momentum?

The New Zealand dollar (NZD) is showing surprising strength in the forex market, even after the Reserve Bank of New Zealand (RBNZ) slashed its official cash rate (OCR) by 50 basis points to 4.25%. This significant cut, in line with market expectations, initially triggered a bullish reaction, with the Kiwi dollar gaining ground against several major currencies.

Before the RBNZ’s announcement, the NZD was trading at 1.1110 against the Australian dollar. However, within just 30 minutes of the rate cut, the pair dropped nearly 100 pips to 1.1012, signalling robust demand for the Kiwi. This sharp movement highlights the underlying strength of the NZD, even as the central bank continues its easing cycle.

I see two key reasons behind the Kiwi’s resilience:

1. Market Expectations vs. Reality

While the market was largely pricing in a 50-basis-point cut, there was a 40% chance of a more aggressive 70-75 basis-point reduction. The fact that the RBNZ opted for a more moderate cut reassured investors. It signalled that the central bank is confident in its ability to manage inflation without resorting to extreme measures.

2. Inflation Is Under Control

The RBNZ’s latest statement emphasised that annual consumer price inflation is now converging toward the midpoint of its 1-3% target range. Core inflation is also trending lower, which gives the central bank more flexibility to cut rates further if needed. The RBNZ even hinted at the possibility of additional rate cuts early next year, should economic conditions align with their projections.

This dual narrative—moderate rate cuts and improving inflation metrics—paints a bullish picture for the NZD in the coming months.

Externally, the kiwi remains under pressure from US President-elect Donald Trump’s latest tariff threats, particularly those targeting China, New Zealand’s largest trading partner.

Stay tuned, and happy trading!

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