New Zealand dollar eyes RBNZ rate announcement

The New Zealand dollar is in positive territory on Tuesday, after a four-day losing streak. In the European session, NZD/USD is trading at 0.5850, up 0.09% on the day. Earlier, the New Zealand dollar fell as low as 0.5797, its lowest level since Nov. 1.

RBNZ expected to slash rates by 50 basis points

The Reserve Bank of New Zealand makes its rate announcement on Wednesday and the markets have priced in a jumbo rate cut of a 50 basis point for a second straight meeting. This would bring the cash rate to 4.25%, its lowest level since November 2022.

The RBNZ has done a good job of lowering inflation, which fell to 2.2% in the second quarter. This is the first time in over three years that inflation is within the target band of between 1 and 3 percent. Still, elevated rates have taken a heavy toll on the economy, as GDP declined 0.2% in the second quarter and likely fell in Q3 as well, which would mark a recession. The central bank’s aggressive rate-cutting is aimed at providing the economy with a much-needed boost.

The New Zealand dollar stands to be the big loser from an oversized rate cut. The currency plunged around 1% after the 50-bp chop in October and we could see another sharp drop on Wednesday if the central bank cuts again by 50 bp.

Will Fed minutes provide clues ahead of December meeting?

The Federal Reserve releases the minutes of the November meeting later today. At the meeting, the Fed lowered rates by 25 basis points. Investors will be looking for insights about what the Fed may have planned for the Dec. 18 meeting. A few weeks ago, a second straight 25-bp cut appeared likely but with the US economy remaining strong, the Fed may opt to pause. Interest-rate future markets are currently pricing in a cut at 59% and a pause at 41%, according to the CME’s Fed Watch.

NZD/USD Technical

• NZD/USD is testing resistance at 0.5857. Above, there is resistance at 0.5898
• There is support at 0.5793 and 0.5752

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