New Zealand inflation expectations inch lower, New Zealand dollar rises

[Ben Graham]

The New Zealand dollar showed some strong gains earlier but couldn't consolidate. After rising as much as 0.50%, NZD/USD has retracted and is trading at 0.5939 in the North American session, up 0.17% on the day.

New Zealand inflation expectations ticks lower in Q3

New Zealand's inflation expectations for the next two years ticked lower in the third quarter, falling to 2.28% from 2.29% in Q2. As well, one-year inflation expecations dipped to 2.37% from 2.41%.

These are not large decreases by any stretch, but the updated figures indicate that businesses expect inflation to ease slightly. The readings are within the Reserve Bank of New Zealand's inflation target band of 1%-3%.

RBNZ likely to cut later in August

Actual inflation rose by 2.7% in the second quarter, up from 2.5% in Q1. Again, this level is within the central bank's target band, where it has remained for a fourth consecutive quarter. Inflation may be a bit high for the Reserve Bank's liking, but it has made clear that it plans to continue lowering rates. The RBNZ held the benchmark rate at 3.25% last month but this was a "dovish hold" as the central bank said it expected to loosen policy if medium-term inflation continued to ease as expected.

The July hold was the first time the Reserve Bank did not cut rates since the easing cycle started in August 2024 - the central bank had lowered rates six straight times, chopping off 225 basis points. The RBNZ statement said that the economic outlook was "highly uncertain", a pointing to sticky inflation and the impact of tariffs. Still, the markets have priced in a rate cut on ugust 20, on the basis that the economy is weak and inflation is contained within the target band.

NZD/USD Technical

• NZD/USD tested resistance at 0.5950. Next, there is resistance at 0.5971
• 0.5921 and 0.5900 are providing support

NZDUSD 1-Day Chart, Aug. 7, 2025

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