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    NZD drops significantly to its lowest since April after OCR expectations are downgraded

    by VT Markets
    /
    Aug 20, 2025
    The New Zealand dollar is dropping after the Reserve Bank of New Zealand lowered its Official Cash Rate expectations. The bank’s meeting notes indicated that they considered a 50 basis point cut but ultimately decided on a 25 basis point reduction.

    Current Market Conditions

    Right now, the NZDUSD has fallen below major support at the 0.8550 level. It’s now at its lowest since April. The Reserve Bank’s unexpected downward revision of the OCR path signals a weaker Kiwi dollar. The mention of a possible 50 basis point cut indicates that further easing might be coming. As a result, traders should prepare for potential declines in the upcoming weeks. This cautious stance is supported by recent data showing Q2 inflation dropped to 1.8%, well within the bank’s target range. This suggests the RBNZ may have room to cut rates again before year-end. The current economic weakness makes selling NZD futures attractive.

    Global Policy Divergence

    In contrast, the US Federal Reserve seems set on maintaining steady rates, as recent minutes from their August meeting raised concerns about steady services inflation at 3.5%. This growing gap between a cutting RBNZ and a strong Fed strengthens the case for a lower NZDUSD. Hence, buying NZDUSD put options becomes a smart strategy to profit from this divergence. With the NZDUSD breaking the important 0.8550 support level, we’re noticing a rise in market volatility. One-month implied volatility has increased from about 9% in July to over 12% now, showing more uncertainty. For traders, buying put options with strike prices near 0.8400 or 0.8350 is a sensible way to gain downside exposure while managing risk. We can look back to the policy shift in late 2021 for a historical perspective on what might happen next. After that change, the Kiwi dollar entered a downtrend over several quarters as the market adjusted to a new easing cycle. A similar pattern might be emerging now, reinforcing a bearish outlook for the currency. Create your live VT Markets account and start trading now.

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