NZD/USD forecast: signal after the jumbo RBNZ rate cut

The NZD/USD exchange rate continued its downward momentum after the Reserve Bank of New Zealand (RBNZ) slashed interest rates by 50 basis points. It fell to the important support at 0.6100, much lower than the year-to-date high of 0.6377.

The benchmark DJ New Zealand index also continued rising, pumping by 1.50% as investors cheered the jumbo rate cut. 

RBNZ cuts interest rates

The NZD/USD exchange rate slipped after the RBNZ decided to cut interest rates from 5.25% to 4.75%.

This cut happened after the recent inflation data showed that prices dropped to 3.3% in the last quarter. It has dropped sharply after peaking at 7.3% in 2023 and has moved inside the bank’s target range of between its 1% and 3% band. 

The bank also slashed rates as it sought to boost an economy that it believed was highly subdued, which it attributed to the substantially high interest rates. 

Higher rates have affected business investments and consumer spending, which has led to weaker employment figures. 

The most recent economic numbers shows that the country’s unemployment rate rose from 4.4% in July to 4.6% in August. It has risen gradually atfter bottoming at 3.3% last year. Also, labor productivity has continued to move downward in the past few months. The statement added:

New Zealand becomes the latest central bank to slash interest rates. In the United States, the Federal Reserve has cut rates by 0.50% while in Europe, the European Central Bank (ECB) has delivered two consecutive 0.25% cuts. 

The same trend has happened in other central banks like the Bank of England (BoE), Riksbank, and the South Africa Reserve Bank (SARB). 

New Zealand’s cut means that it has moved earlier than the neighboring Reserve Bank of Australia (RBA). Minutes released on Tuesday showed that officials were not in a hurry to slash interest rates.

Analysts now expect New Zealand’s central bank to deliver more rate cuts in the next few meetings.

Federal Reserve minutes

The NZD to USD exchange rate also retreated as traders waited for the upcoming Federal Reserve minutes and the latest US inflation data.

The minutes, which will come out on Wednesday, will provide more information about the last meeting when the committee decided to cut interest rates by 0.50%.

These minutes are usually more detailed than the one-page statement that comes out after the rate decision.

In that meeting, the bank judged that the labor market was the biggest concern and decided to deliver a jumbo cut. The unemployment rate had risen from last year’s low of 3.5% to 4.3% while the Bureau of Labor Statistics (BLS) delivered several downward revisions to the nonfarm payroll numbers. 

While these minutes will be important, the NZD/USD pair will react more to statements by several Fed officials like Austan Goolbsee, James Williams, and Tom Barkin. These statements will be important because these officials will react to last week's US jobs data. 

The numbers showed that the labor market was strong as the unemployment rate dropped to 4.1% last month. 

US inflation data ahead

The next important NZD/USD news will be Thursday’s US inflation data. Economists expect the data to show that the headline Consumer Price Index (CPI) dropped from 2.5% in August to 2.3% in September. 

These numbers will confirm that the headline CPI is moving towards the Federal Reserve’s target of 2.0%. However, the key issue is that service inflation, especially housing, has remained at an elevated level. Core inflation, which excludes the volatile food and energy products, is expected to drop from 3.3% to 3.2%.

The other top concern is on the energy sector, where crude oil and natural gas prices have risen because of tensions in the Middle East. Brent has risen to $80 while West Texas Intermediate (WTI) has jumped to $77, pushing gasoline prices higher.

NZD/USD technical analysis

The NZD/USD pair has done as we predicted earlier this week. It has retreated from last month’s high of 0.6377 to below 0.6100. 

Along the way, the pair has dropped below the important support level at 0.6299, its highest swing on August 29, and 0.6221, its highest level on June 12. It also flipped the support at 0.6100, its lowest swing on 11th September into a resistance.

The NZD to USD pair has also moved below the 50-day and 100-day Exponential Moving Averages (EMA). Therefore, the path of the least resistance for the pair is downwards, with the next point to watch being at 0.6050.