At its meeting, which concluded early on Wednesday morning, the Reserve Bank of New Zealand (RBNZ) cut the interest rate from 3.25% to 3.00% in line with forecasts. However, NZD/USD showed a strong bearish reaction, as the market was surprised by the dovish shift in the Bank's long-term projections.

The RBNZ now sees the rate at 2.7% in December and 2.5% in March of next year, compared with the May meeting forecast of 2.9% in both quarters. The revision came amid the Bank's forced acknowledgment that the economic recovery is proceeding much more weakly than expected. The main reasons cited include global economic uncertainty, falling employment, rising prices for some essential goods, and declining housing prices.

The RBNZ's updated projections took markets by surprise, although regional banks more familiar with New Zealand's real situation had anticipated this adjustment. In particular, ANZ, in an article published before the meeting, expected the rate to fall to 2.5% for at least two quarters.

The RBNZ sees grounds for further rate cuts to support the economy. As for the main threat—namely inflation—the Bank expects price growth to stop near the upper boundary of its 1–3% target range. Other forecasts have also shifted: inflation will remain slightly higher throughout 2026, unemployment will peak at 5.3% by the end of the year, and hover near 5% throughout 2026. This projection has also been revised upward, while GDP growth remains roughly unchanged. The latter indicator can stay in positive territory precisely due to a faster rate cut cycle—had the RBNZ not revised its rate forecast in a dovish direction, it would likely have lowered its GDP forecast instead.

Overall, the meeting results were bearish for the kiwi. NZD/USD reacted with a sharp decline, and pressure on the currency is likely to remain strong for at least the coming weeks.

Positioning in NZD barely changed during the reporting week, with the bearish bias standing at just 279 million—close to neutral—but the fair value remains below the long-term average and is trending lower.

A week ago, we expected NZD/USD to decline toward the 0.5840/50 support zone. The kiwi followed this scenario and even dropped further due to the RBNZ's markedly dovish forecast revisions. There are no grounds to expect a reversal northward yet; the rebound from the 0.5810 low may be purely technical, as fundamentals support a bearish outlook. We anticipate an attempt to test 0.5800, with good chances of breaking lower. However, a deeper decline looks unlikely under current conditions, as an expected increase in risk appetite should limit further downside.