Kiwi outlook: RBNZ decision could be the catalyst for NZD/USD breakout

Prior Forecasts: Growth, Jobs and Inflation

Q2 GDP was a horror show, contracting 0.9% q/q versus the RBNZ’s prior forecast for a 0.3% decline and a flat annual rate. The slump was broad-based and left growth well below expectations. While very weak, the low base effect may see updated projections for future GDP growth nudged higher relative to three months ago. Back then, the Bank anticipated growth accelerating to a sustained annual pace of more than 2.5% by mid-2026.

The unemployment rate sat at 5.3%, the level the RBNZ previously forecast it would peak at in Q2 2025 before easing to 5% by Q3 2026. It will be worth watching how that track evolves in the latest projections because labour force participation is below the 70.4% level forecast for mid-year. That drop has kept a lid on unemployment, preventing a sharper rise. If participation rebounds faster than assumed, it could limit wage and inflationary pressures by keeping unemployment elevated for longer. Participation will therefore be a key input in today’s forecasts.

Annual CPI inflation is sitting at 3.0%, right at the top of the RBNZ’s 1–3% target band and in line with its prior forecasts. That level also marked the peak in the profile for this cycle, with the Bank previously projecting a gradual deceleration back to the 2% midpoint by Q2 2027. With price stability as its sole mandate, the trajectory for inflation remains central to policy decisions.

Market Pricing

Source: Bloomberg

Swaps currently price 27.1bp for today’s meeting, effectively a full 25bp cut with a sliver of risk for a second. The market’s reluctance to price a 50 makes sense, but the case for a larger move is not trivial. The RBNZ delivered a 50bp cut in October and has signalled a willingness to do multiple reductions. With nearly three months until the next meeting in early 2026, why not front-load easing again?

I think the risk of another 50 is greater than pricing suggests, but history tempers conviction. At this meeting in 2024, the Bank had every excuse to deliver 75bp or more for similar reasons but opted for 50 instead. It then had to cut far more aggressively later, a misstep under the prior governor. After 300bp of cuts this cycle, that precedent tilts the odds toward a 25bp move today in my view.

Looking ahead, swaps favour another cut to 2% by May 2026, though it’s not fully priced. My base case is the OCR will trough at 2% this cycle, if not today then early next year.

What to Watch

The decision drops at 2pm Wellington (12pm Sydney), followed by outgoing Governor Christian Hawkesby’s press conference at 3pm. This will be his final meeting before handing over to Anna Breman in December, so don’t expect fireworks—he’s unlikely to rock the boat. Along with the rate decision and updated forecasts, the vote split will be a key detail. Any dissent, whether for a larger cut or no move, could matter more for New Zealand markets than the headline decision given a 25bp cut is fully priced.

Kiwi’s Tide Turning?

It’s been a tough few months for Kiwi bulls, but there are tentative signs the tide may be starting to turn against the U.S. and Australian dollars.

As shown in the daily chart below, NZD/USD has been in a sustained downtrend through the second half of the year, marked by a series of lower highs and lower lows. However, there are indications we may have seen a near-term bottom heading into today’s meeting. The first is the bullish engulfing candle that printed last Friday, with price reversing sharply after a false break of downtrend support a session earlier. Since then, price has been grinding higher toward minor resistance at 0.5939.

Source: TradingView

Momentum is also showing signs of turning. We’ve seen bullish divergence between price and RSI (14), with the latter trending higher, signaling waning downside strength. Combined with the MACD signal line crossover, the message is one of caution for bears, hinting they’re slowly losing their grip. Should current trends persist, it may flip the overall signal bullish from bearish for the first time in months.

Key downside levels include 0.5582, 0.5515, and 0.5470, with the first likely to be broken should the RBNZ go 50 today. On the upside, a break of 0.5639 would put price on a collision course with the September downtrend. Given the falling wedge pattern Kiwi has been trading in, a bullish breakout above that level implies we could see far higher levels, putting 0.5692, the 50DMA, and 0.5755 resistance potentially in play.

Source: TradingView

Turning to AUD/NZD, it too looks like it may have topped out, with price unable to return toward recent highs following a sharp reversal earlier this month, delivering what ended up being a bearish pin that warned of downside risks. Since then, price has been trading sideways, leaving it wedged today right against uptrend support dating back to August. If broken cleanly, it would put 1.1445, the 50DMA, and 1.1280 support on the radar for bears.

Should AUD/NZD hold the uptrend, 1.1527 is a minor level above before more pronounced resistance kicks in at 1.1630. Momentum indicators suggest diminishing upside strength, with RSI (14) trending lower toward the neutral 50 level. MACD confirms the cautious signal for bulls, having already crossed the signal line from above before trending lower while remaining in positive territory. The overall bias is now more neutral than bullish, placing increased emphasis on price action to drive direction.