RBNZ Preview: Rate Guidance Key to NZD/USD Direction as 50bp Cut Looms

• RBNZ set to cut rates by 50bp, fully priced by markets
• Focus shifts to rate path projections and policy statement
• Market sees faster cuts than RBNZ’s last forecast—volatility risk
• NZD/USD near highs, could react sharply to rate guidance

Summary

The RBNZ is expected to deliver a 50bp rate cut this Wednesday, with market focus shifting to its forward guidance. Despite inflation slightly overshooting forecasts, underlying trends and anchored expectations support further easing. The central bank has closely followed market expectations in recent meetings, making a surprise move unlikely.

With markets pricing in a faster pace of rate cuts than the RBNZ’s prior projections, any deviation in guidance could drive volatility. If the RBNZ sticks to its previous rate path, short-term Kiwi yields may rise, lifting NZD/USD. The currency pair is holding multi-month highs, with technical indicators favouring a mild bullish bias ahead of the decision.

Go Big or Go Home, Again

The Reserve Bank of New Zealand is almost certain to deliver another supersized rate cut at its first monetary policy decision of the year, with market focus shifting to its rate guidance to drive direction.

Following its November meeting, when the RBNZ cut the cash rate by 50 basis points to 4.25%, it stated: “If economic conditions continue to evolve as projected, the Committee expects to be able to lower the OCR [overnight cash rate] further early next year.”

Inflation Moderation Clears Path to Cut

As a central bank with a single mandate to keep inflation low and stable between 1-3% annually, the latest inflation reading of 2.2% in the fourth quarter came in just a fraction above its 2.1% forecast.

Despite the minor overshoot, further progress in lowering underlying inflation, and with expectations remaining anchored near the midpoint of its target in the period since, it leaves the RBNZ on track to deliver another 50bp cut in February, bringing the cash rate to 3.75%.

Source: TradingView

Not Keen to Rock the Boat

The RBNZ has moved rates in line with market pricing at each of the past two meetings. It even noted the 50 basis point cut in November aligned with its mandate of maintaining low and stable inflation while seeking to avoid unnecessary instability in output, employment, interest rates, and the exchange rate.

Recent form suggests the central bank is not looking to disrupt expectations, reinforcing the likelihood of another 50bp move.

Market Pricing Appears Rich

Overnight index swaps markets carry an implied probability of a 50bp reduction at 98%—essentially locking in the outcome. With little chance of a surprise move, market attention will shift to the RBNZ’s forward guidance in the policy statement, meeting minutes, and updated rate projections.

Source: Bloomberg

When the RBNZ last updated its forecasts three months ago, it saw the cash rate averaging 3.55% in the fourth quarter of 2025. That's less dovish than current market expectations which see the cash rate finishing the year between 3% and 3.25%.

Both the RBNZ and markets anticipate the cash rate will bottom around 3%, but markets expect it to get there about a year earlier. That timing mismatch could create volatility when the decision and updated forecasts are released on Wednesday.

Source: RBNZ

If the rate track remains unchanged from three months ago, it could push short-term Kiwi interest rates higher and lift NZD/USD, similar to the reaction seen when the Bank of Canada and Sweden’s Riksbank recently removed explicit easing biases.

NZD/USD Technical Analysis

A day out from the RBNZ decision, NZD/USD is trading near multi-month highs, supported by a softer US dollar.

Source: TradingView

0.5754 offers near-term resistance, with a break of that opening the door for a potential push towards 0.5800, 0.5888, or even the November 2024 swing high of 0.5929. On the downside, minor support is located at 0.5723, with the 50-day moving average sitting just underneath.

RSI (14) and MACD are trending higher, albeit the slope is more meandering than steep. That marginally favours buying dips and bullish breakouts.

The impact of the RBNZ decision is likely to dimmish quickly into European and North American trade. While NZD/USD has been negatively correlated with the US dollar index over the past month, it’s had a stronger relationship with Asian currencies such as the Chinese yuan and Australian dollar. Rate differentials and dairy have not demonstrated any significant relationship.

Key Dates & Times

Date: Wednesday, February 19

Policy decision, meeting minutes, and updated forecasts: 2pm Wellington (12pm AEDT)

Press conference: 3pm Wellington (1pm AEDT)

-- Written by David Scutt

Follow David on Twitter @scutty

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