Chart of the Day - NZDUSD (19.02.2025)

The New Zealand Dollar initially weakened before staging a recovery against the USD today, as the Reserve Bank of New Zealand (RBNZ) delivered its third consecutive 50 basis point cut while signaling a more measured pace ahead for future reductions. The NZDUSD pair is currently trading at 0.5720, with investors parsing through the central bank's forward guidance amid rapidly evolving global dynamics.

Transition to Measured Rate Cuts

The RBNZ's latest policy action saw its Official Cash Rate (OCR) lowered to 3.75% from 4.25%, maintaining its position as one of the most aggressive rate-cutters among major central banks. Governor Adrian Orr has signaled a transition to smaller 25-point cuts in April and May, suggesting a more calibrated approach as the bank seeks to balance economic recovery with inflation management. This shift in strategy comes as the central bank expresses growing confidence in its ability to manage price pressures while supporting growth.

CPI vs Rates. Source: Bloomberg L.P.

Inflation Dynamics and Price Pressures

The inflation outlook presents a complex picture, with the RBNZ's updated forecasts showing a potential re-acceleration to 2.7% later this year. This projection is being influenced by several factors, including the impact of exchange rate movements, rising fuel prices, and uncertainty surrounding the effects of US trade policy. The central bank has noted that near-term price pressures may remain volatile as these various influences play out.

Global Context and Trade Uncertainties

The global context remains particularly challenging, with markets digesting Donald Trump's re-election and renewed tariff threats, which have heightened concerns about international trade flows. Economic growth expectations globally remain subdued, while increasing geoeconomic fragmentation adds another layer of complexity to the outlook. The policy landscape among major central banks continues to diverge, with the Reserve Bank of Australia only just beginning its easing cycle, in contrast to the RBNZ's more advanced path.

Forward Outlook and Economic Recovery

Looking ahead, the RBNZ has projected the OCR to fall to approximately 3% by year-end, a more aggressive reduction than previously indicated. While an economic recovery is anticipated in 2025, currency movements will be influenced by several key factors, including forthcoming domestic GDP data, developments in global trade policy, business investment decisions, and export sector performance. The labor market is expected to show signs of improvement in the second half of 2025, which could provide additional support for the currency.

NZDUSD (D1 Interval)

The NZDUSD pair is trading at its January high of 0.57224. For upside momentum to continue, the 100-day SMA should be retested. If successful, the 0.5831–0.5912 range could come into play. On the other hand, the 50-day SMA at 0.56427 currently acts as support. The RSI is showing bullish divergence with higher highs, while the MACD continues to widen.