The NZD/USD currency pair initially hit an intraday low of 0.5677 on Wednesday, then rebounded back above the 0.5700 mark, after the Reserve Bank of New Zealand cut its official cash rate by 50 basis points to 3.75% at its February policy meeting, in line with market consensus.
The move brought borrowing costs to their lowest level since October 2022 amid slowing GDP growth and easing inflation.
Yet, the central bank indicated that further rate cuts would be of smaller size and the end of the monetary easing cycle was not too far now.
RBNZ Governor Adrian Orr flagged more 25 bps rate cuts likely in April and May, which would leave borrowing costs in a neutral range. Orr noted there was no need to “rush” to neutral.
A rate of 3% is seen as a neutral longer-term floor.
“We continue to expect the RBNZ to slow the pace of cuts to 25bps per meeting to reach a terminal rate of 3.0%,” Andrew Boak, economist at Goldman Sachs, was quoted as saying by Reuters.
“That said, we see risks skewed to larger/deeper cuts if ‘hard’ data do not start to show signs of improvement, including upcoming data on GDP growth ahead of the RBNZ’s next meeting.”
Market focus now sets on the minutes of the Federal Reserve’s January meeting due later today for clues over how policy makers have weighed the risk of a broader tariff war.
The NZD/USD currency pair was last up 0.40% on the day to trade at 0.5726.
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