The NZD has declined on Friday, trading at 0.5931, down 0.68% on the day. This reversal comes after a remarkable seven-day rally in which the New Zealand dollar surged by 7.9%, reaching five-month highs before today’s pullback. Economic analysts are closely monitoring New Zealand’s currency movements as they reflect broader economic trends in the South Pacific nation.
New Zealand Inflation Rises Above Expectations, Impacting Currency Markets
New Zealand’s inflation rate jumped to 2.5% year-over-year in the first quarter of 2025, up from 2.2% in Q4 2024 and exceeding market expectations of 2.3%. This represents the highest inflation reading for New Zealand since June 2024.
The inflation increase was primarily driven by rising gasoline costs and higher rent prices across New Zealand’s major urban centers. Quarterly, New Zealand’s Consumer Price Index (CPI) increased to 0.9%, significantly higher than the previous quarter’s 0.5% and above market forecasts of 0.7%.
Despite New Zealand reporting higher-than-anticipated inflation figures, the New Zealand dollar failed to maintain its upward momentum. Financial analysts tracking New Zealand dollar’s markets note that NZD/USD has broken below the support level at 0.5922, with the next support positioned at 0.5872. Key resistance levels for the NZD remain at 0.6000 and 0.6028.
See more related articles: The forecast of the gbp and projections for the CHF
The Reserve Bank of New Zealand Is Expected to Lower Interest Rates
The Reserve Bank of New Zealand (RBNZ) is unlikely to be significantly concerned by the inflation increase. Because the 2.5% rate still falls comfortably within the central bank’s target range of 2%-3%.
New Zealand’s monetary authorities are instead focusing on more pressing concerns: escalating global trade tensions and deteriorating economic outlook worldwide. Particularly as US President Trump signals additional tariff measures that could impact New Zealand’s trade relationships.
Even with New Zealand’s recent inflation spike, financial markets have fully priced in an interest rate cut for the RBNZ’s upcoming May 28 meeting. The RBNZ already reduced rates by 25 basis points earlier this month, bringing the cash rate down to 3.5%. It is the lowest level since October 2022.
Economists believe New Zealand will keep cutting interest rates to protect its economy from global challenges. Projections suggest New Zealand’s cash rate could fall to 2.75% or possibly 2.5% by the fourth quarter of this year.
While US tariff policies may have limited direct impact on New Zealand’s domestic economy, the escalating US-China trade tensions represent a substantial risk factor for New Zealand. In particular, New Zealand’s export sector could face significant challenges, given that China remains New Zealand’s largest trading partner.
In conclusion, the New Zealand dollar dropped after reaching a five-month high, despite inflation rising to 2.5%. The RBNZ is expected to cut interest rates further to shield the economy from global uncertainties. The cash rate may decrease to 2.5% by the end of 2025.
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