The New Zealand dollar fell in Asian trade on Wednesday against a basket of major rivals, extending losses for the second straight session against the US dollar under pressure from the widening interest rate gap between the US and New Zealand.

The Reserve Bank of Australia cut interest rates to three-year lows and warned against the impact of US tariffs, and hinted at a slightly deeper than expected policy easing cycle. 

The Price

The NZD/USD price fell 0.4% today to $0.5924, with a session-high at $0.5968.

The New Zealand dollar closed down 0.9% on Tuesday against the dollar on profit-taking away from a six-month peak at 60.32 cents.

The kiwi was also hurt after strong US consumer confidence data for May.

RBNZ

The Reserve Bank of New Zealand cut interest rates by 25 basis points to 3.25% to April 2022 lows, the sixth such rate cut in a row, and matching expectations.

It wasn’t a unanimous vote, with a single member out of five voting in favor of maintaining rates unchanged.

The central bank cut interest rates by 225 basis points since August 2024 as lower inflation gave policymakers leeway to ease monetary policies to face the impact of US tariffs head on. 

The RBNZ said inflation remains within target range, and the bank is in a good position to respond to local and international developments and maintain stable prices in the medium term.

The bank warned that increasing uncertainty about global policies will negatively impact business investments and consumption in New Zealand. 

The bank expects interest rates to reach 2.92% in the fourth quarter of 2025, and 2.85% in the first quarter of 2026.

New Zealand Rates

Following the central bank’s meeting, the odds of a 0.25% RBNZ rate cut in July fell below 50%.

Interest rate futures estimates final New Zealand rates at 3% by the end of the year, up from 2.75% in previous forecasts.

Rate Gap

The current US-New Zealand interest rate gap stands at 125 basis points, favoring the greenback against its New Zealand counterpart.

The Reserve Bank of New Zealand cut interest rates by 25 basis points to 3.25% to April 2022 lows, the sixth such rate cut in a row, and matching expectations. 

Australia’s consumer prices rose 2.4% y/y in April, beating estimates of 2.3%, and same as the previous reading.

The data showcases the impact of inflationary pressures on Australian monetary policymakers, and huts the odds of an Australian rate cut in July. 

The Federal Reserve warned against increasing economic risks when it decided to hold interest rates unchanged in May.

Fed Chair Jerome Powell focused on uncertainty for the world’s largest economy following Trump’s aggressive tariff decisions during his post-Fed meeting speech this month.

Now markets expect two interest rate cuts overall this year, with some even thinking that this is overly optimistic as US inflation is expected to persist at 3.4%.

Bank of America’s strategists say the upcoming Fed’s meeting minutes will shed more light on the central bank’s decision and stance in response to a potential inflationary recession if occurred. 

Barkclay’s analysts also note the markets have forgotten about tariffs fairly quickly with the focus on tariffs, but the overall macro picture is still held to the tariff war dilemma. 

Some analysts dismissed the possibility of the return of the trade war as Trump already showed leniency and desire to normalize the situation as he did with China, and will likely do with the EU.

Inflation Arguments 

Minneapolis Fed President Neil Kashkari said there’s a “healthy debate” in the Fed about whether the inflationary impact of Trump’s tariffs are transient or not.

He himself believes that trade negotiations could take months or years and might include reciprocal tariffs that will impact economic performance and prices.

The White House has called on the Fed to treat any price spike as temporary, with Trump once again calling on the Fed to cut rates, but officials remain wary.

Fed official Chris Waller believes that tariff-induced inflation are transient, and that inflation could settle at 3% if current negotiations proved effective.

Now the Fed awaits its favorite inflation index, the Core Personal Consumption Expenditures index this week, expected to clock in at a 2.5% rise in nApril, down from 2.6% in March.

Crucial second-reading GDP growth data will also be released, after the initial reading showed a 0.3% contraction.

The Fed decided to maintain interest rates unchanged at below 4.5% at the May meeting, after cutting rates by an entire point last fall.

Fed Chair Powell warned the US economy might veer clear off its employment and inflation targets this year, which would be concerning to policymakers. 

Kashkari, at his latest speech, supported his colleague, Beth Hammock, who said that it’s better to be slow on the right path than to be quick on the wrong path.