The New Zealand dollar strengthened broadly on Wednesday against a basket of major and minor currencies, extending gains for a second consecutive session versus the US dollar and hitting a three-week high. The move comes as investors increased their exposure to the kiwi after the Reserve Bank of New Zealand adopted a more hawkish tone at its final meeting of the year.

In line with market expectations and marking a third consecutive rate cut the RBNZ lowered interest rates by 25 basis points to their lowest level in three years, while signaling that the current easing cycle is effectively coming to an end as signs of economic recovery begin to emerge.

Price Overview

NZD/USD rose 1.4% to 0.5697, the highest since November 4, up from an opening level of 0.5618. The pair recorded an intraday low of 0.5616.

The kiwi ended Tuesday up 0.2% versus the US dollar, its second gain in three sessions, supported by a softer greenback.

Reserve Bank of New Zealand

The RBNZ cut its official cash rate by 25 basis points to 2.25% on Wednesday its lowest since May 2022 marking the ninth cut since the easing cycle began a year ago and the third in a row. The bank has now lowered rates by a cumulative 325 basis points since August 2024, as inflation slowed back into the medium-term target range of 2%3% amid weak economic activity and a softening labor market.

In its final policy statement of the year and the last under Governor Christian Hawkesby before Swedish economist Anna Breman takes over in December the bank said future moves would depend on how inflation and economic conditions evolve over the medium term.

It noted that inflation risks are now balanced, with economic activity expected to remain soft through mid-2025 before gradually improving as lower interest rates support household spending.

Minutes from the meeting showed that policymakers debated holding rates at 2.50% or cutting by 25 basis points, with five of the six members voting in favor of the cut.

At a press conference, Governor Hawkesby highlighted the policy shift, noting the outlook tilts slightly to the downside but is consistent with keeping the policy rate unchanged through 2026. The bank now expects the OCR to reach 2.20% in Q1 2026 and 2.65% by Q4 2027 lower than August forecasts but still reflecting a more hawkish bias, with little room left for further easing.

New Zealand Rate Outlook

Following the RBNZ decision, market pricing for another 25-basis-point cut in February 2026 dropped below 20%.

Futures markets see the policy rate ending 2026 around 2.25%.

Analyst Commentary

Nick Tuffley, chief economist at ASB Bank, said the door to further easing is not as wide as many had expected, adding that the RBNZ was generally more cautious than anticipated. He noted that another cut is unlikely unless economic data weakens significantly.

Doug Steel, chief economist at BNZ, said the hurdle for additional action is now high, adding: The data would need to surprise meaningfully on the downside to push the RBNZ toward more easing.