RBNZ cuts rates as expected – Commerzbank

As expected, the Reserve Bank of New Zealand cut its key interest rate by 25 basis points to 3.5% this morning. After the RBNZ had recently cut interest rates in large steps of 50 basis points each, the pace has been slowed down, as expected. However, further rate cuts were still on the cards, Commerzbank's FX analyst Volkmar Baur notes.

NZD under pressure amid trade turmoil

"Inflation based on the monthly indicator, which reflects only a bit less than half of the actual CPI basket, has recently picked up slightly. However, the central bank rightly continues to view inflation as comfortably within its target corridor of 1-3%, giving it sufficient flexibility to react to further (international) surprises."

"New Zealand is less exposed to US tariffs than other countries. After all, New Zealand's exports to the US have 'only' been subject to the 10% base tariff since the weekend, and the US accounts for only about 11% of New Zealand's exports. However, 50% of all New Zealand exports go to Asia, where there is currently a lot of uncertainty due to the very high US tariffs in some areas."

"The NZD's weakness in recent days is therefore best explained by these indirect effects of US tariffs on New Zealand. As a small, open economy, New Zealand is of course particularly dependent on international trade. Continued turbulence in international trade will therefore continue to weigh on the NZD."