NZD/USD: Pace of rate cut to slow going forward – OCBC

Reserve Bank of New Zealand (RBNZ) cut rate by 50bp to bring OCR to 3.75%. This is widely expected. Its economy slipped into a technical recession in 3Q, with service sector showing a faster rate of contraction in Dec while manufacturing activity was in contraction territory. Consumer confidence, business confidence and activity outlook indicators were also lacklustre. NZD was last at 0.5727 levels, OCBC's FX analyst Christopher Wong notes.

NZD may be forming a base

"That said, recent data in Jan saw a pick-up in manufacturing and services sector. MPS also noted that economic growth is expected to recover during 2025. Lower interest rates will encourage spending, although elevated global economic uncertainty is expected to weigh on business investment decisions. Higher prices for some of our key commodities and a lower exchange rate will increase export revenues. Employment growth is expected to pick up in the second half of the year as the domestic economy recovers."

"At the press conference, Governor Orr guided for further cuts, of about 50bps by mid-July but indicated that the series of larger-than-usual interest rate cuts has come to an end. He is looking at a 25bp cut each in Apr and May. NZD fell first on policy decision as MPS continued to guide for easing bias – scope to lower the OCR further through 2025 if economic conditions evolve as projected. But NZD erased losses after Governor Orr signalled an end to the larger-than-usual magnitude of rate cuts and to revert to 25bp cuts instead."

"The OCR forecast table also indicated rates to bottom around 3.1% later this year. An end in sight for RBNZ’s rate cut cycle may imply that NZD may be forming a base, assuming the tariff impact is not overly drastic and China’s recovery finds better footing. Mild bullish momentum on daily chart intact though RSI eased. Consolidation likely. Support at 0.5655/75 levels (21, 50 DMAs). Resistance at 0.5750, 0.5810 (100-DMA)."