• RBNZ holds cash rate at 5.25%
• New Zealand dollar declines 1.2%

The New Zealand dollar is sharply lower on Tuesday. In the European session, NZD/USD is trading at 0.6095, down 1.22%. Earlier, the New Zealand dollar dropped to a low of 0.6092, its lowest level since February 13.

RBNZ less hawkish than anticipated

There was no surprise as the Reserve Bank of New Zealand paused rates for the fifth straight time on Wednesday, as the “higher for longer” stance remains in force. The markets had priced in a pause at today’s meeting at 75%. What was unexpected and sent the New Zealand dollar tumbling was the tone of the meeting, which was less hawkish than what we’ve been hearing lately from the RBNZ.

At the meeting, the RBNZ expressed satisfaction with the inflation outlook. The rate statement noted that “core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced”. This was a departure from Governor Orr’s warning two weeks ago that inflation expectations remained too high.

Orr has been pushing back against rate cut expectations and has said that rate hikes remain on the table. At today’s meeting, however, Orr said that “there was very strong consensus that the official cash rate right now is sufficient”.

In addition to Orr’s strong hint that he would not raise interest rates, the RBNZ lowered its forecast of a peak cash rate to 5.6%, down from 5.7% in the previous forecast. This was not only a more dovish stance of the central bank’s expected rate path, but greatly reduce the likelihood of further rate hikes, given that the current cash rate stands at 5.5%.

The RBNZ may be moving away from a rate hike, but a rate cut does not look likely in the near term. The central bank has projected that it will not lower rates until 2025, which could mean that its “higher for longer” stance will be in place for the foreseeable future.

NZD/USD Technical

• NZD/USD easily broke below support at 0.6141 and is putting pressure on support at 0.6085
  There is resistance at 0.6180 and 0.6236

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