NZD/JPY Technical: Further Kiwi weakness, torpedoed by an ultra-dovish RBNZ

[Ben Graham]

New Zealand’s central bank (RBNZ) cut its Official Cash Rate (OCR) as expected by 25 basis points (bps) to a three-year low of 3% today.

The major surprise was the RBNZ’s monetary policy guidance that skewed towards a more dovish stance than expected. Its latest forward guidance shows that the average OCR is projected to fall to 2.71% by the end of 2025, lower than the earlier projection of 2.92% made in May.

Two more potential interest rate cuts by the RBNZ

Also, it forecasts the OCR to drop further to a low of 2.55% in early 2026, versus 2.85% projected in May. Hence, based on this set of latest dovish projections, the RBNZ has indicated that it is likely not done with its interest rate cycle, with at least one more interest rate cut before 2025 ends, and a high chance of a second.

In today’s meeting, two RBNZ officials stood in the minority, advocating for a larger 50 bps rate cut, further reinforcing an indirect dovish monetary policy guidance.

Based on a 5-day rolling performance basis as at this time of writing, the Kiwi is the outlier and weakest currency against the US dollar (see Fig. 1).

The NZD/USD rallied by 2.5%; in contrast, the USD/JPY traded almost flat (0.2%). Therefore, the NZD/JPY cross opens an opportunity to construct a medium-term (1-3 weeks) trading set-up based on technical analysis.

Fig. 1: 5-day rolling performance of major currencies against the US dollar of 20 Aug 2025 (Source: TradingView)

Fig. 2: NZD/JPY medium-term trend as of 20 Aug 2025 (Source: TradingView)

Preferred trend bias (1-3 weeks)

Bearish bias below 86.95 key medium-term resistance for the NZD/JPY, and a break below 85.90 opens up scope for a further potential bearish impulsive down move sequence to expose the medium-term supports of 85.00 and 84.40/84.00 (also a Fibonacci extension cluster) (see Fig. 2).

Key elements

• The price actions of NZD/JPY have traded below moving averages (20-day, 50-day, and now 200-day), further cementing a medium-term downtrend phase that is in progress since the 28 July 2025 swing high area of 89.00.
• The 4-hour MACD trend indicator of the NZD/JPY has continued to trend downwards below its centreline, which reinforces a medium-term downtrend phase.
• Today’s ultra-dovish monetary policy guidance from the RBNZ has triggered a significant sell-off of 17 bps on the 2-year New Zealand government bond yield (sensitive to monetary policy) to plunge to a three-year low of 3.08%.
• The 2-year yield premium spread between New Zealand and Japanese government bonds has continued to shrink from 2.48% printed on 4 August to 2.24% at this time of writing, which in turn puts further downside pressure on the NZD/JPY cross rate.

Alternative trend bias (1 to 3 weeks)

A clearance above 86.95 negates the bearish tone for a squeeze up to retest the next medium-term resistance at 87.80 (also the 20-day and 50-day moving averages).

Opinions are the authors'; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. The provided publication is for informational and educational purposes only.
If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please refer to the MarketPulse Terms of Use.
Visit https://www.marketpulse.com/ to find out more about the beat of the global markets.
© 2025 OANDA Business Information & Services Inc.