NZD/USD flattens as risk sentiment sours ahead of RBNZ rate decision
- NZD/USD steadies near 0.6000 as risk sentiment sours ahead of RBNZ rate decision.
- US President Trump extends reciprocal tariff deadline to August 1, keeping trade tensions elevated.
- RBNZ is expected to hold OCR at 3.25% on Wednesday, following 225 bps of rate cuts since August 2024.
The New Zealand Dollar (NZD) halts its gains against the US Dollar (USD) on Tuesday, as the Greenback strengthens following renewed tariff threats and an extension of the deadline for reciprocal tariffs. US President Donald Trump extended the reciprocal tariff deadline to August 1 from July 9, leaving room for further negotiations but keeping market sentiment cautious.
The NZD/USD pair is trading near the 0.6000 mark during the American session as investors remain cautious ahead of the Reserve Bank of New Zealand’s (RBNZ) July policy announcement, due at 2:00 AM GMT on Wednesday.
The central bank is widely expected to keep the Official Cash Rate (OCR) unchanged at 3.25% following six consecutive cuts. However, the broader tone is likely to remain cautious, with policymakers grappling with mixed domestic inflation signals and mounting global trade uncertainty, both of which are keeping the Kiwi under pressure.
The RBNZ has been in an aggressive rate-cutting mood since it began last August, reducing the OCR by 225 basis points from 5.5 percent to the current 3.25 percent, including three 50-basis-point cuts.
One of the key reasons the Reserve Bank of New Zealand is expected to keep interest rates unchanged is the presence of conflicting inflation signals within the economy. While overall consumer price inflation has come down to 2.5% in the first quarter, which is within the RBNZ’s target range of 1% to 3%, core inflation remains persistently elevated. In particular, non-tradable inflation, which reflects domestic price pressures such as rents and services, continues to hover around 4.0%, suggesting sticky underlying inflation.
Additionally, recent data indicate renewed increases in electricity and food prices, raising concerns about short-term price volatility. These mixed signals leave the RBNZ with limited room to ease further without risking a rebound in inflation, reinforcing the case for a rate hold while policymakers monitor whether core price pressures begin to ease more decisively.
The RBNZ is also expected to tread carefully at its July meeting, given its earlier guidance and current market positioning. According to BNZ Head of Research Stephen Toplis, the central bank had signaled in its May Monetary Policy Statement that market pricing would play a key role in shaping near-term decisions. “In some ways, the RBNZ is in a comfortable spot,” Toplis told Radio New Zealand, adding that with markets not anticipating a cut in July but still pricing in further easing later this year, the central bank has little incentive to make a surprise move. Indeed, interest rate markets assign less than a 20% probability of a cut at its July meeting, while the odds of a cut in August sit closer to 60%, reinforcing expectations of a cautious, data-dependent approach.
Economic Indicator
RBNZ Interest Rate Decision
The Reserve Bank of New Zealand (RBNZ) announces its interest rate decision after each of its seven scheduled annual policy meetings. If the RBNZ is hawkish and sees inflationary pressures rising, it raises the Official Cash Rate (OCR) to bring inflation down. This is positive for the New Zealand Dollar (NZD) since higher interest rates attract more capital inflows. Likewise, if it reaches the view that inflation is too low it lowers the OCR, which tends to weaken NZD.
Read more.Next release: Wed Jul 09, 2025 02:00
Frequency: Irregular
Consensus: 3.25%
Previous: 3.25%
Source: Reserve Bank of New Zealand
The Reserve Bank of New Zealand (RBNZ) holds monetary policy meetings seven times a year, announcing their decision on interest rates and the economic assessments that influenced their decision. The central bank offers clues on the economic outlook and future policy path, which are of high relevance for the NZD valuation. Positive economic developments and upbeat outlook could lead the RBNZ to tighten the policy by hiking interest rates, which tends to be NZD bullish. The policy announcements are usually followed by interim Governor Christian Hawkesby's press conference.