NZD/USD forecast: sits at a core level ahead of the RBNZ rate decision

The NZD/USD exchange rate pulled back today, May 25, as forex traders for the upcoming Reserve Bank of New Zealand (RBNZ) interest rate decision, which happens on Wednesday this week. It retreated to 0.5872, down by nearly 2% from its highest point this month.

RBNZ interest rate decision ahead

The main catalyst for the NZD to USD exchange rate will be the upcoming interest rate decision. Most analysts believe that Anna Breman and her team will leave rates unchanged at 2.25%. It will be the second consecutive month in which officials the bank’s officials will leave rates intact.

The RBNZ has been highly dovish in the past few months as it slashed interest rates from the post-pandemic high of 5.5% to 2.25%. It did that as the economy slowed down, which pushed Jacinda Ardern out of office in 2023. It also slashed rates as inflation slowed from 7.7% in 2022 to 2.2% in 2024.

Analysts believe that the bank will leave rates unchanged this week, but deliver a hawkish tone now that consumer and producer inflation numbers have continued to rise. The most recent data showed that the headline CPI jumped to 3.1% in the first quarter from its post-pandemic low of 2.2%.

Analysts also expect that the bank may decide to hint at two rate hikes this year to combat inflation that has moved further away from its 2% target. In a note, an analyst told Bloomberg that:

“The market expects a pause from the RBNZ this week, but with a sole inflation mandate the market remains nervous of a surprise hike.” 

The expected pause explains why New Zealand’s bond yields have pulled back in the past few days. Data shows that the ten-year yield dropped to 4.68%, its lowest point since May 7 and much lower than the year-to-date high of 4.90%. Similarly, the five-year yield dropped to 4.16%, its lowest point since May 7 this year.

The RBNZ’s actions are significantly different from those of the neighboring Reserve Bank of Australia (RBA), which has embraced high rates. It has delivered three rate hikes this year to combat the elevated inflation.

The NZD/USD pair is also reacting to the potential deal between the US and Iran, which Trump hinted would happen during the weekend. A deal would be a good thing for New Zealand, a country that imports most of its energy products.

NZD/USD technical analysis

NZD/USD chart | Source: TradingView

The daily chart shows that the AUD/USD pair has been in an overall downward trend in the past few months. It has remained below the descending trendline that connects the highest swings since January 29. 

The pair has moved to the Major S&R pivot point of the Murrey Math Lines tool. It also remained below the 50-day Exponential Moving Average (EMA), a sign that bears remain in control.

There are signs that it has slowly formed a bearish pennant pattern. Therefore, the most likely scenario is where it continues falling, potentially to the psychological level at 0.5800.

However, a rebound is also possible as the pair has formed a double-bottom pattern at 0.5815 and a neckline at 0.5988.  It also formed an inverted head-and-shoulders pattern. A double-bottom is one of the most common bullish reversal signs in technical analysis.