As expected, the Reserve Bank of New Zealand (RBNZ) lowered the interest rate by 25 basis points to 3.25% following its May meeting. This marks the sixth round of monetary policy easing in the current cycle. Since the central bank implemented the baseline scenario, traders have focused on the statement and the rhetoric of RBNZ Acting Chair Christian Hawkesby. Overall, the outcome of the May meeting was interpreted positively for the New Zealand dollar. Initially, the NZD/USD pair dropped sharply in response to the rate cut itself, but then the kiwi rebounded by several dozen points—the market well received Hawkesby's comments and those of the RBNZ's chief economist.
It is worth noting that before the meeting, market sentiment was largely dovish—not only in terms of expectations for the rate decision itself but also regarding the central bank's future policy trajectory. I believe these expectations were somewhat excessive, so NZD/USD buyers responded positively to the final message, even though the language was vague and mild.
One key uncertainty was how the RBNZ would assess the recent Q1 inflation report. On one hand, all components of the release exceeded forecasts. Year-on-year, the Consumer Price Index accelerated to 2.5% (versus a forecast of 2.3% and the previous reading of 2.2%). Quarter-on-quarter, inflation rose by 0.9% after a 0.5% increase in Q4 (with a forecast of 0.6%).
On the other hand, despite this acceleration, inflation in New Zealand remains within the RBNZ's target range (1%–3%). Dovish commentators also pointed to the wage growth index, which slowed to 2.5% (below the 2.7% forecast) and has declined for eight consecutive quarters.
In its commentary, the RBNZ did not emphasize the acceleration in CPI, merely noting that inflation remains within the target band and that the real economy is "slowly but steadily recovering."
Yet these signals did not benefit NZD/USD bears—for several reasons.
First, the RBNZ's Governing Committee was not unanimous in its decision to cut rates. Five members voted in favor, while one opposed. Although only one vote went against the cut, market expectations had been for unanimous support of a dovish move.
Second, Hawkesby delivered cautious remarks regarding the outlook for further easing, stating that the central bank has "already done a lot of work." He also noted that the RBNZ is "not pre-programmed for policy changes,"—meaning there is no pre-agreed path for further cuts. Similar comments were made by Chief Economist Paul Conway, who added that the interest rate is now "close to neutral."
Third, the RBNZ's updated projections worked in favor of the Kiwi. The new rate forecast suggested an average level of 2.9% by year-end. While this is lower than the February projection of 3.1%—a theoretically dovish signal—it does not imply two more 25-basis-point cuts, which the market had been pricing in to bring the rate down to 2.75% by the end of 2025.
In other words, the outcome of the May meeting can be described as a "hawkish cut." De facto, the RBNZ eased policy settings but delivered moderately hawkish forward guidance, essentially signaling that only one more rate cut might be on the table this year. Any additional easing is now highly uncertain.
In my view, NZD/USD traders will quickly price in the outcome of the May meeting. The RBNZ did not "sink" the kiwi and, in fact, provided modest support to the national currency, allowing buyers to push the pair to an intraday high of 0.5974 and recover from the previous day's drop to the lower 0.59 area. However, the pair's future upside potential will depend on the broader strength or weakness of the U.S. dollar. The U.S. Dollar Index is hovering between 98 and 99, reacting impulsively to news about Donald Trump's controversial tax reform bill and developments in U.S.–EU and U.S.–China trade talks.
Technically, NZD/USD remains within the 0.5920–0.6000 range, trading between the middle and upper lines of the Bollinger Bands on the D1 timeframe and above all lines of the Ichimoku indicator—indicating a continued bullish bias. The nearest resistance level (short-term bullish target) is at 0.6000 (the upper Bollinger Band on the daily chart), with the main target at 0.6070 (the upper boundary of the Kumo cloud on the weekly chart).
