New Zealand Dollar: Kiwi Lender Brings Forward RBNZ Rate Cut Call


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The rising odds of an interest rate cut in November could weaken the New Zealand Dollar further.

One of New Zealand's biggest lenders - Auckland Savings Bank - has brought forward its forecast for when the Reserve Bank of New Zealand (RBNZ) will cut interest rates.

"We have changed our OCR outlook – we expect the RBNZ to cut the OCR from November this year," says Nick Tuffley, Chief Economist at ASB. "Households are starting to buckle more noticeably under the various pressures of high interest rates and high (though easing) living cost inflation."

Previously, the first cut was only expected in 2025. The New Zealand Dollar had found support from expectations that the RBNZ might be one of the last of the G10 central banks to cut interest rates, but ASB says the economy will need support within months.

Despite entering a recession in 2023, New Zealand's inflation has defied expectations and remained stubbornly high, partly thanks to a strong labour market.

"The labour market has been a bit of a saviour, with employment holding up and wage growth relatively stronger. Even that story is starting to change, with cost-cutting pressures in organisations, wage growth slowing, and job security worries on the up," says Tuffley.

Crucially, ASB says it is starting to see inflation indicators soften with more alacrity. "We are more confident that Inflation will be comfortably back in the target band by year-end."

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The New Zealand Dollar strengthened from April to June as investor expectations for an RBNZ rate cut in 2024 retreated amidst stubborn inflation. In fact, in May, we were even reporting on speculation that the next move would be a hike.

Now, the tide is turning on these expectations, and the odds of rate cuts this year are growing, which can begin weighing on NZD again.

The currency weakened after this week's NZIER business survey, which showed a continued deterioration in economic sentiment, raising the odds of a rate cut in H2.


The quarterly Survey of Business Opinion pointed to a further decline in business confidence in the second quarter, and ASB says the findings are consistent with "recessionary conditions".

Analysts at Kiwibank are also expecting a rate cut this year, saying all economic indicators are turning favourable.

"The inflation dragon has been slain, we're just waiting for it to hit the turf. This is good news for businesses, who have had to deal with rapid inflation in parts," says Jarrod Kerr, Chief Economist at Kiwibank. "The QSBO adds further support for our call for RBNZ rate cuts sooner rather than later. We’re sticking to our call for cuts to begin in November."

The Kiwi can underperform further if rate cut expectations continue to build in the coming weeks.

It won't be a straight line, though, as pockets of support will come from improving global investor sentiment, which typically benefits the New Zealand Dollar and its Australian cousin.

Sentiment received a shot in the arm on Wednesday when a string of U.S. data prints came in much softer than expected, raising the odds that the Federal Reserve will cut rates in September.

This has boosted global equity markets and commodities, which can also offer NZD support and limit any downside stemming from the domestic RBNZ story.