On Wednesday, August 20, the Reserve Bank of New Zealand will conclude its latest meeting, where it may reduce the interest rate by 25 basis points—from 3.25% to 3.0%. To be more precise, a 25-point cut is considered the base case and most expected scenario (with a probability of over 90%). Therefore, its implementation is unlikely to trigger a surge in volatility for NZD/USD. The intrigue lies in the outlook for further monetary policy easing. Here, opinions diverge: some analysts believe the RBNZ will hint at the end of the current cycle (amid accelerating inflation), while others expect the central bank to allow for one more rate cut at one of the two remaining meetings this year.
First, let's analyze the key (and currently relevant) macroeconomic indicators on which the central bank will base its rate decision.
Inflation. As mentioned above, annual inflation in New Zealand accelerated to 2.7% in the second quarter, rising by 0.2 percentage points. The main drivers of CPI growth were increases in local taxes, rental costs, and food prices. In the previous quarter, inflation stood at 2.5%, supported by rising rents, local tariffs, and construction costs, partially offset by lower gasoline prices. Inflation expectations edged lower: two-year forecasts dropped from 2.29% to 2.28%, and one-year forecasts from 2.41% to 2.37%.
In other words, the situation is rather mixed. On the one hand, inflation accelerated in the second quarter; on the other, CPI remained within the RBNZ's target range of 2–3%, while expectations stayed anchored. This provides all the grounds for a rate cut in August. However, regarding the outlook, the central bank may take a more cautious stance—again, due to the acceleration of the key inflation indicator.
Labor market. The unemployment rate rose to 5.2% in the second quarter—the highest level since late 2020. Moreover, the figure has been steadily increasing since early 2023, reflecting negative trends. For example, labor force participation and employment are both falling: in Q2, participation dropped to its lowest since 2021. Employment also continues to decline, partly due to young people under 30 leaving the country (emigration hit a 13-year high: nearly 72,000 people left in the year to June 2025, 38% of them under 30). Major banks forecast further increases in unemployment. ASB and Westpac, in particular, project it will rise to 5.3% in Q3.
In other words, the New Zealand labor market is cooling: unemployment is steadily rising, labor force participation is falling, and negative emigration and demographic trends are intensifying.
Economic growth. GDP data for the second quarter will only be published in mid-September (around the 18th), so the RBNZ will have to rely on "outdated" data. As is known, GDP grew by 0.8% in Q1, after expanding by 0.5% in Q4 2024. Before that, the figure had been negative for two consecutive quarters. This suggests a positive trend for now. However, analysts at several major banks expect growth to slow significantly in Q2. For example, ANZ economists forecast GDP growth of just 0.1% q/q. Their colleagues at Westpac and ASB issued more optimistic projections (+0.3%), though even that would indicate weak economic growth.
Thus, in my view, the above macroeconomic reports support a 25-point rate cut at the August meeting. However, the central bank may adopt a cautious tone, refraining from signaling further cuts. The market would interpret such rhetoric as a hint at the end of the current monetary easing cycle. In that case, the New Zealand dollar—and accordingly NZD/USD buyers—would gain support and could break out of the 0.5900–0.5930 range, within which the pair has been fluctuating for three trading days in a row.
Technical view. Long positions should only be considered if the pair breaks above the resistance level at 0.5950, which corresponds to the upper boundary of the Kumo cloud on the H4 timeframe. In this scenario, the price would rise above all Ichimoku indicator lines (which would form a bullish "Parade of Lines" signal on the four-hour chart) and above the upper line of the Bollinger Bands. The primary target is 0.6030, which corresponds to the upper Bollinger Bands line on the D1 timeframe.
