RBNZ Meeting Preview: 25 bps Cut Expected. Will it be the Last Cut of 2025?

[Redator]

The Reserve Bank of New Zealand (RBNZ) is expected to cut interest rates by 0.25% this week, bringing the rate to 3%. This would mark a total reduction of 2.5% during the current cycle. Markets are also predicting another cut later this year or early next year, possibly lowering the rate to 2.75% or even 2.5%.

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The main focus will be on the RBNZ's updated economic and rate forecasts, as well as any new guidance. Back in May, the RBNZ suggested there was about a 60% chance of one more rate cut to 2.75%. We believe the new projections will likely confirm this cut, but since markets already expect 2.75% as the final rate, it won’t seem overly cautious or "dovish."

The RBNZ's Tightrope Walk

The RBNZ is in a difficult position. On one hand, inflation remains stubbornly high, with the annual rate at 2.7% and expected to approach 3% by the end of the year. This is higher than the RBNZ had previously forecast. On the other hand, the economy is showing clear signs of slowing down.

High-frequency economic data has been softer, with manufacturing and services PMIs remaining soft. The labor market is also weakening, with the unemployment rate rising to 5.2%. This mixed bag of data presents a significant challenge for the RBNZ as it tries to balance its mandate of controlling inflation without derailing economic growth.

Scenarios for the RBNZ's Decision

While a 25-basis-point cut to the Official Cash Rate (OCR) to 3% is the consensus expectation, the accompanying forward guidance will be the main focus. Here are the potential scenarios:

The Base Case, A Dovish Hold: The most likely scenario is a 25bp cut with a "data-dependent easing bias". In this case, the RBNZ would signal that further cuts are possible, but contingent on incoming economic data. This would give the central bank flexibility to react to the evolving economic landscape.

The Hawkish Cut (10% probability): In this scenario, the RBNZ would deliver the 25bp cut but signal a clear intention to pause its easing cycle. This would be driven by concerns that inflation may not fall as quickly as expected and rising inflation expectations. Such a move would likely be supportive of the New Zealand dollar.

The Dovish Cut (10% probability): Alternatively, the RBNZ could cut by 25bp and strongly hint at more to come, with a further cut to 2.75% by November being a distinct possibility. This would signal that the central bank is more concerned about the downside risks to growth and is prepared to act aggressively to support the economy.

Forward Outlook and Guidance

The RBNZ's forward guidance will be crucial in shaping market expectations. The central bank has been trying to steer the market away from expecting a cut at every meeting, and towards a more data-driven approach. It's likely the RBNZ will emphasize the importance of the upcoming data releases between now and the November meeting in determining the future path of the OCR.

Technical Analysis - NZD/USD

From a technical standpoint, NZD/USD on the daily timeframe is trading in a falling wedge pattern at the moment which hints at a potential bullish breakout.

For now though, the pair continues to grind lower with a catalyst needed for a breakout.

That could come either from the Jackson Hole event this weekend or a significant surprise from the RBNZ at today's meeting.

Looking at the period-14 RSI and it has struggled to break back above the level, with two previous attempts being met by selling pressure. A sign that bearish momentum remains strong for now.

Immediate support rests at 0.5881 before the 0.5821 and 0.5767 handles come into focus.

A move higher needs to contend with resistance at 0.5942 before eyes turn to the top end of the wedge pattern which lines up with the psychological 0.6000 mark.

NZD/USD Daily Chart, August 20, 2025

Source: TradingView.com (click to enlarge)

Client Sentiment Data - NZD/USD

Looking at OANDA client sentiment data and market participants are Long on NZD/USD with 75% of traders net-long. I prefer to take a contrarian view toward crowd sentiment and thus the fact that the majority of traders are net-long suggests that NZD/USD could continue to slide in the near-term.

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