Brown Brothers Harriman reports that the recent GDP drop allows for potential interest rate cuts, with the RBNZ hinting at reductions in September. Commerzbank predicts a 25-basis-point cut, pointing out the market’s expectations and its limited impact on the New Zealand Dollar.

US Dollar Impact

The US Dollar is strong due to political and economic uncertainties in France and Japan, which affect the Euro and Yen. Although the US Federal Reserve may cut rates, the Greenback’s increase seems to be capped. Our main focus is on the RBNZ’s decision tomorrow. The market expects a rate cut, but the key question remains: Will it be 25 or 50 basis points? Implied volatility in one-week options has risen above 15%, indicating that traders are prepared for a significant move. If the RBNZ opts for a 50-point cut, the Kiwi dollar might drop below the 0.5800 level. This would be a response to the troubling 0.9% GDP contraction from last quarter and the recent rise in the unemployment rate to a three-year high of 4.5%. Such a move would benefit traders with put options or short NZD/USD futures.

Effect of Empirical Data

In contrast, a typical 25-point cut is already factored into the market and may not lead to a major sell-off. We saw something similar in September 2025, when a 25 basis point cut caused a brief dip before the currency bounced back. In this case, the RBNZ’s forward guidance will likely be more important than the actual cut. Moreover, the strength of the US dollar is limited. The US jobs report from last Friday revealed a slowing labor market, which supports our expectation for a Federal Reserve rate cut later this month. This could provide support for NZD/USD, preventing a total collapse even if the RBNZ takes aggressive action. Thus, the immediate strategy relies on predicting a surprise from the RBNZ since a standard cut is already anticipated. In the coming weeks, any additional weakness in the Kiwi should be balanced by expected weakness in the Greenback. This suggests that options strategies, like buying puts, which profit from a downward break but involve limited risk, might be wise. Create your live VT Markets account and start trading now.

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