The New Zealand dollar traded lower against the US dollar on Friday, settling at $0.591 as higher-than-expected inflation data failed to derail expectations for further RBNZ rate cuts.
Inflation Bump Fails to Alter Rate Cut Path
New Zealand’s annual inflation rate rose to 2.5% in Q1 2025, slightly above market forecasts of 2.3%, marking the first increase in the annual rate since Q2 2022. Despite this uptick, inflation remains comfortably within the RBNZ’s 1-3% target band for a third consecutive quarter. Core inflation measures continued to ease, with the weighted median falling to 2.2% from 2.6%, reinforcing expectations that the central bank will continue its easing cycle. Markets remain fully priced for another 25bps cut at the RBNZ’s May 28 policy meeting, with rates expected to bottom at 2.75% by year-end.
Trade War Concerns Weigh on Kiwi
The NZD/USD paused its recent seven-day winning streak as escalating US-China trade tensions cast a shadow over New Zealand’s export-dependent economy. As a major agricultural exporter to China, New Zealand remains particularly vulnerable to the unfolding trade conflict, with President Trump’s 145% tariffs on Chinese goods prompting retaliatory measures. While Trump expressed confidence on Thursday that a trade deal could be finalized within weeks, uncertainty continues to cap the Kiwi’s upside potential.
Domestic Recovery Shows Mixed Signals
New Zealand’s economy is in the early stages of recovery after years of recession, with domestic price pressures gradually easing. Housing-related costs, which have been a key inflation driver, are showing signs of moderation. The annual increase in rents slowed to 3.7%, its first rise below 4% since 2021, while newly built home costs increased just 1.9% over the past year—the smallest annual increase since 2010. ANZ analysts recently adjusted their forecasts to include an additional rate cut to 2.5%, citing “trade tensions and ongoing uncertainty surrounding the global growth outlook.”
NZDUSD (D1)
NZDUSD is trading around the 50% Fibonacci retracement level. The RSI continues to show bullish divergence with higher highs and is now pulling back from overbought territory. A similar pattern is emerging on the MACD, which may also begin to retrace.
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