RBNZ Hints at More Rate Cuts as Neutral Estimate Drops |Errante
Market Overview
The Reserve Bank of New Zealand (RBNZ) has been aggressively cutting interest rates, and it’s not done yet. The central bank has recently shared its estimate for the “neutral” interest rate, which is where the economy grows steadily, and inflation and unemployment stay stable. This neutral rate is between 2.5% and 3.5%, but the current cash rate sits at 4.25%—too high to support the economy fully.
Because of this, markets are predicting more rate cuts in 2025, possibly four or five in total. If this happens, the cash rate could drop to around 3%, matching the RBNZ’s idea of a neutral level. These cuts could help support economic growth, but they also bring some uncertainties, especially for the New Zealand dollar (NZD).
Fundamental Factors
The main reason for these potential cuts is to manage inflation and stabilize the economy. Paul Conway, the Chief Economist at RBNZ, explained that lower inflation expectations and reduced domestic pricing pressures are making further rate cuts possible. Lower rates are expected to help New Zealand’s economy, but the central bank remains cautious, choosing to adjust step by step based on how the economy responds.
An interesting twist in all this is how traders are reacting. Normally, lower interest rates would create risks for the NZD, as investors look to countries with higher rates. But right now, NZD/USD traders aren’t too worried about these differences. Instead, they are more focused on U.S. trade policies. This shows that global factors, like U.S. economic decisions, could have just as much or more influence on the NZD than New Zealand’s local rate decisions.
Technical Analysis
NZDUSD on H4 is below the 200/50 Moving average.Theres been a liquidity grab on the highs aroynd the 200 MA with an Orderblock of H8 followed by a bearish fair value gap.reasoning on the expectations of rate cuts.Now the market is below both the Moving averages , representing a bearish momentum.Market also presents No demand VSA setup .
Conclusion
The RBNZ is on track to cut rates further in 2025 as it works toward a more balanced economy. Markets are already pricing in a series of moves, expecting rates to drop closer to the neutral range of 2.5% to 3.5%. While this would normally affect the New Zealand dollar, international factors like U.S. trade policies are currently taking the spotlight. As the year progresses, both domestic monetary decisions and global developments will play critical roles in shaping New Zealand’s economic future and the NZD’s behavior.
Find us on
