New Zealand dollar takes a tumble after RBNZ’s dovish tone

The New Zealand dollar is sharply lower on Wednesday. NZD/USD is trading at 0.6081 in the European session, down 0.72% on the day at the time of writing.

The Reserve Bank of New Zealand held the cash rate at 5.50% at today’s meeting, the eight consecutive time it has maintained rates. No surprise there, but the rate statement was very dovish, which was completely unexpected.

At the previous RBNZ meeting in May, policy makers projected that the Bank would not lower interest rates until the third quarter of 2025. Today’s meeting appears to signal a significant shift away from that hawkish stance.

The heading of the policy statement was “Inflation Approaching Target Range”, in sharp contrast to the “Official Cash Rate to Remain Restrictive” in May. The statement noted that restrictive monetary policy had “significantly reduced consumer price inflation”, language which was more dovish than in the May statement. In the statement, the central bank acknowledged that policy would remain restrictive but added that this could change if, as expected, inflationary pressures eased.

The markets viewed the statement as a signal that the RBNZ might lower rates much sooner than expected, perhaps as early as the August meeting. This has triggered sharp losses for the New Zealand dollar as lower interest rates makes the New Zealand currency less attractive to investors.

The money markets have raised the possibility of an August rate cut to 60%, sharply higher than 33% prior to the rate decision. The inflation report for the second quarter, which will be released next Wednesday, will be a critical factor in the RBNZ rate decision in August.

NZD/USD has pushed below support at 0.6114 and is testing support at 0.6079. Below, there is support at 0.6013

0.6180 and 0.6215 are the next lines of resistance
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