NZD/USD dropped 1% to a six-month low near 0.5740 after the Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate by 50 basis points, bringing it to 2.50%. The RBNZ hinted at possible further cuts due to spare capacity and risks to activity and inflation. ### Market Perceptions And Expectations Market views changed rapidly, with swaps indicating that the OCR could fall to 1.75% in the next year. Although the RBNZ expected the OCR to stabilize around 2.50% in August, the swaps market dropped this expectation to a potential 1.75%, down from an earlier 2.25%. The policy shift was larger than expected, as the markets had only priced in a 40% chance of such a move. The RBNZ’s guidance suggests that the OCR might be closer to the lower end of its neutral range of 1.60% to 4.20%. The FXStreet Insights Team compiles expert market observations, urging readers to do their own research before making financial decisions. They emphasize that the information provided is for informational purposes and carries risks. Markets should not be viewed as trading recommendations. The unexpected 50 basis point cut by the RBNZ has significantly changed our outlook for the Kiwi dollar. With the central bank open to more cuts, the NZD is likely to face downward pressure in the coming weeks. ### Trading And Economic Outlook This situation is good for traders looking to short the NZD, especially against a strong US dollar. We suggest using derivative strategies, such as buying NZD/USD put options or entering swaps that bet on falling rates in New Zealand. These approaches can help us take advantage of the dovish momentum and the expectation that rates will drop to around 1.75%. Signs of this slowdown were visible after New Zealand entered a technical recession in late 2023. Official data showed a GDP decline of 0.1% for the December 2023 quarter, and inflation fell to 4.0% by March 2024. This backdrop set the stage for the aggressive rate cuts we are witnessing now. The broader market context supports a bearish outlook for the NZD/USD pair. The US government shutdown is strengthening the US dollar, making it a safe-haven asset. This situation creates a stark contrast between a weakening currency and one gaining strength from global uncertainty. We will focus on upcoming economic data from New Zealand before the next monetary policy update on November 26. Any signs of weakness in inflation or employment will likely increase expectations for further RBNZ cuts. We will closely monitor these releases to adjust our derivative positions. Create your live VT Markets account and start trading now.

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