NZDUSD slides before RBNZ 📉 Interest rates vs inflation and record unemployment

NZDUSD posts a 0.1% correction ahead of tomorrow’s interest rate decision in New Zealand. Overnight, the Reserve Bank of New Zealand (RBNZ) is expected to lower the Official Cash Rate (OCR) by 25 bps to 3%. However, the rebound in inflation observed in recent months could complicate further easing, and thus the effort to improve conditions in New Zealand’s labour market.

CPI inflation in New Zealand has begun to rebound from the June 2024 trough (2.2%), coinciding with the start of the RBNZ’s monetary easing cycle. Source: XTB Research, based on RBNZ and Stats NZ data.

Global food inflation strengthens domestic pressures

While the current year-on-year inflation level remains within the RBNZ’s 1–3% target band, sectoral price dynamics and monthly estimates suggest that achieving post-pandemic price stability may take longer than initially expected. Over the last four quarters, inflation has climbed dangerously from 2.2% to 2.7%.

The largest contributor to the latest reading was food prices, especially dairy, which represents the biggest share of New Zealand’s exports. Global upward pressure on dairy prices therefore has a particularly significant impact on the New Zealand economy, given its net exporter status and the direct link to wages in many domestic sectors.

Due to trade linkages, the RBNZ has very limited influence in curbing inflationary pressures stemming from dairy. However, it is worth noting that core inflation has also been gradually rising, breaking out of the RBNZ target in the last quarter (3.2%). Bloomberg’s monthly estimate stood even higher, at 4.3% in July.

Alongside food inflation, the biggest price increases last quarter were recorded in housing, utilities, and certain services (cultural and recreational). Deflationary effects came from transport services due to falling oil prices. Source: Stats NZ

Labour market: a bigger concern

On the other hand, weakness in the labour market and the general decline in activity in New Zealand are limiting the potential for global food inflation to spill over into consumer inflation expectations. The unemployment rate has been rising steadily since 2021, reaching 5.2% in the last quarter — the highest since September 2020.

Rising unemployment is the main problem for the New Zealand economy, weighing on both consumers and private sector activity. Source: Stats NZ

The weakness is most evident in the services sector, which accounts for roughly 70% of New Zealand’s GDP and has been contracting since early 2025 (Services PMI below 50). Worsening job prospects are also contributing to the largest labor outflow in 13 years. According to Stats NZ, nearly 72,000 residents left New Zealand between June 2024 and June 2025, with over one-third under the age of 30.

The sharp rise in unemployment should therefore naturally limit inflation’s upside potential, while growth concerns — particularly in an era of trade disruptions — are likely to attract more of the RBNZ’s attention than current food price dynamics.

The money market is almost fully pricing in tomorrow’s 25 bps cut, but further easing remains uncertain (57% chance of another 25 bps cut before the end of 2025). In the longer term, the market expects the OCR to stabilize around 2.5%. Source: Bloomberg Finance LP

NZDUSD (D1)

NZDUSD is trading within a broadening upward trend channel that has held since the start of this year. The pair is trading below its previous support at the 100-day EMA (purple), finding new support near 0.591, slightly above the 200-day EMA (yellow). If it falls below the EMA200, the last line of defense for the current trend would be the support zone defined by the recent low at 0.583 (orange). On the upside, the pair needs to break above resistance at 0.612, though the similar monetary policy direction in New Zealand and the U.S. favors more of a consolidation around 0.59–0.60.

Source: xStation5