New Zealand’s decision to hold rates at 2.75% surprised markets and most Bloomberg experts, who had expected another hike. Let’s analyze the situation and develop a trading plan for NZD/USD.
The article covers the following subjects:
Major Takeaways
- The RBNZ caught markets off guard by keeping rates unchanged.
- The decision is linked to the upcoming elections.
- The kiwi plunged against major currencies.
- Consider selling NZD/USD on pullbacks from 0.561 and 0.5645.
Weekly New Zealand Dollar Fundamental Forecast
With central banks fighting to keep politicians out of monetary policy, the Reserve Bank of New Zealand seems to have put up no fight at all. On October 28, it held rates at 2.75%, despite 23 of the 25 Bloomberg economists expecting a hike to 3%. The surprise hold, just 10 days before the election, gave the ruling party a boost but sent NZD/USD sliding to a two-week low. The kiwi also plunged against the Australian dollar, pushing AUD/NZD to its highest level since March 2013 in its biggest daily rally in seven years.
Accelerating inflation and a gradual economic recovery had strengthened the case for further RBNZ rate hikes. As a net energy importer, New Zealand had been hit by the conflict in the Middle East. The central bank’s own forecasts suggested that the cash rate would need to reach 3.5% to bring inflation under control. Yet in October, policymakers voted 4–3 to keep rates on hold.
Actual and Forecast Inflation in New Zealand
Source: Bloomberg.
At the press conference, RBNZ Governor Anna Bremen pointed to global uncertainty but signaled that a rate hike was likely further down the line. That only reinforced suspicions that the bank had bowed to political pressure, giving the center-right government a helping hand ahead of the November 7 general election.
The opposition Labour bloc will almost certainly push for higher taxes and increased government spending, as well as changes to the RBNZ’s mandate that would require it to focus on employment alongside inflation.
The RBNZ appears to have put its own interests first, responding to threats to its mandate by holding the cash rate at 2.75% and catching markets off guard. AUD/NZD bulls were the biggest winners. Rising inflation in Australia and hawkish comments from RBA officials added fuel to the rally, prompting traders to price in a greater chance of a rate hike from 4.6% to 4.85% at the next meeting on November 3.
Inflation and Central Bank Interest Rates
Source: Bloomberg.
The RBA has already raised rates four times in 2026, compared with just two hikes by the RBNZ. The widening interest rate gap supports AUD/NZD, and a fifth Australian hike would further bolster the pair. The RBA could still disappoint markets, but for now, AUD/NZD looks more likely to rise than fall.
Weekly NZD/USD Trading Plan
The kiwi’s reaction to the RBNZ’s surprise decision speaks volumes. Even expectations of a future rate hike have done little to support NZD/USD, as confidence in the central bank has weakened. The pair’s downtrend is likely to continue. Therefore, consider short trades on pullbacks from resistance at 0.561 and 0.5645.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of NZDUSD in real time mode
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