The NZD/USD fell 1% to around 0.5740, reaching a six-month low after the Reserve Bank of New Zealand (RBNZ) unexpectedly cut the Official Cash Rate (OCR) by 50 basis points to 2.50%. The RBNZ is open to further cuts, citing economic risks and unused capacity. Market expectations have changed rapidly, with swaps now indicating the OCR could drop to 1.75% in the next year. The RBNZ had previously expected the OCR to stabilize at 2.50%, but new forecasts on November 26 might alter this view. The swaps curve shows the OCR could fall to about 1.75% over the next twelve months, a decrease from the earlier estimate of 2.25%.

Insights From FXStreet Team

The FXStreet Insights Team, made up of seasoned journalists, shares observations from market experts, including commercial notes and analyses from various contributors. The unexpected 50 basis point cut from the RBNZ signals a potential further weakening of the New Zealand dollar in the coming weeks. The aggressive move to a 2.50% OCR indicates serious concern over economic activity, suggesting the NZD/USD pair might break below its six-month low of 0.5740. The central bank’s decision is backed by recent data showing a slowdown. Q2 2025 GDP contracted by 0.2%, and annual inflation eased to 2.8%, comfortably within the target range. This supports the RBNZ’s decision to continue cutting rates, especially as the market now anticipates a bottoming OCR near 1.75%. We see this rate cut as the beginning of a continued easing approach.

Focus On Policy Divergence

For derivatives traders, this emphasizes the gap in policies between central banks. The US Federal Reserve is likely to keep its rate around 4.75%, and the Reserve Bank of Australia is maintaining its rate at 3.85%. This creates a larger interest rate difference compared to New Zealand, making long AUD/NZD and long USD/NZD trades appealing in the medium term. The unexpected rate cut has likely increased short-term implied volatility for the NZD in the options market. We suggest selling this heightened volatility, as the RBNZ’s next steps appear clearer now, reducing surprises for its upcoming meetings. Strategies may include selling NZD/USD strangles to take advantage of a period of stabilization after the initial drop. Looking at historical examples, such as the RBNZ’s easing cycle in 2019, we see that an initial large cut was followed by more reductions to support the economy. Thus, establishing outright short positions using NZD futures contracts is a straightforward way to express a bearish outlook. The market signals are clear, and we should prepare for a lower OCR by the end of the year. Create your live VT Markets account and start trading now.

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