The New Zealand dollar declined in Asian trading on Wednesday against a basket of major and minor currencies, hitting a two-week low against its U.S. counterpart. The drop followed a widely expected decision by the Reserve Bank of New Zealand to leave interest rates unchanged at their lowest level in three years.

The RBNZ stated that it expects to ease monetary policy if inflationary pressures continue to decline as projected over the medium term.

The Price

The New Zealand dollar fell around 0.3% against the U.S. dollar to 0.5979, its lowest level since June 24, down from the days opening price of 0.5995. It recorded an intraday high of 0.6015.

On Tuesday, the NZD had risen by approximately 0.1% versus the U.S. dollar, marking its first gain in five days as it attempted to recover from recent lows.

Reserve Bank of New Zealand

As anticipated, the RBNZ held its benchmark interest rate steady at 3.25% on Wednesday, its lowest level since April 2022, following six consecutive rate cuts, the most recent of which occurred at the prior meeting.

The central bank has slashed rates by a total of 225 basis points since August 2024. However, with inflation at 2.5% and concerns that trade tensions could heighten price pressures, the bank adopted a more cautious tone.

The RBNZ noted that if medium-term inflationary pressures continue to recede as expected, the committee anticipates further cuts to the Official Cash Rate (OCR).

The central bank added that the economic outlook remains highly uncertain. Additional data on the pace of New Zealands recovery, inflation persistence, and the impact of tariffs will shape the future path of interest rates.

The statement also highlighted that while higher export prices and lower interest rates are supporting New Zealands recovery, growing global policy uncertainty and tariff measures are likely to dampen global economic growth.

The RBNZ explained that this is expected to slow the pace of New Zealands recovery, which would ease inflationary pressures.

Markets now expect that the continued weakness in the economy will give the RBNZ enough room to cut interest rates at least once more this year.

New Zealand Rate Outlook

Following the RBNZ meeting, the probability of a 25-basis-point rate cut at the August 20 meeting rose above 60%.

Futures pricing for New Zealand interest rates suggests an OCR of 3.0% by year-end.

To reassess these expectations, investors will closely monitor upcoming key economic data from New Zealand, particularly reports on inflation, unemployment, and GDP growth.