Kiwi Slides as RBNZ Delivers Surprise Hold

The Reserve Bank of New Zealand held its Official Cash Rate at 2.75% on Wednesday, October 28, in a 4–3 vote. Three committee members favored a 25-basis-point increase to 3%.

The kiwi fell as much as 1.7% against the U.S. dollar to an intraday low of $0.55831. It recovered part of the decline after Governor Anna Breman reiterated that further increases remained likely.

Why Unchanged Rates Still Weakened the Kiwi

In a Reuters poll, 22 of 27 economists had expected a 25-basis-point increase. With a higher rate widely anticipated, the decision prompted investors to reassess near-term returns from New Zealand assets.

A currency can weaken even when its central bank leaves rates unchanged. If investors had positioned for higher yields, a pause can reduce the expected attraction of holding that currency relative to alternatives.

The RBNZ nevertheless said tighter policy was still likely, conditional on the outlook. That leaves the timing and scale of future increases central to whether the kiwi’s initial fall persists.

Inflation Keeps Further Hikes in View

Annual inflation eased to 3.7% in the September quarter from 4.1% in June, remaining above the 1%–3% target range. The RBNZ projects 4.4% in the December quarter, largely reflecting fuel prices.

The majority wanted more time to assess two earlier rate increases. Subdued wages, stable medium-term inflation expectations, and an uneven recovery supported waiting, while the dissenters emphasized the risk of persistent inflation.

A weaker currency adds a complication by raising import costs in local-currency terms. If depreciation lasts, it can reinforce inflation pressures, although weak domestic demand may limit how much businesses pass on.

What Could Shift the Kiwi Next?

The next scheduled RBNZ decision is December 9, accompanied by a Monetary Policy Statement. Its updated projections should help investors assess whether delayed tightening changes the broader interest-rate path.

Before then, the Federal Reserve’s decision later on Wednesday introduces U.S. influence. A stronger signal of future American tightening could weigh on NZD/USD by improving the dollar’s relative yield outlook.

Evidence of broader inflation persistence could support renewed expectations for New Zealand rate increases. Conversely, softer demand or weaker global growth could encourage investors to price a longer pause.

For currency markets, the key test is how those expectations move relative to U.S. policy. Follow-through in short-term yields and subsequent trading will help establish whether the initial repricing becomes sustained weakness.

Disclaimer! This material is not intended as investment advice. Past performance data does not guarantee future profits. Investing in foreign currencies may affect your returns due to their fluctuations. Any securities transaction may result in both profits and losses. The assumptions and expectations set forth in the material are only estimates that may not be accurate and may change according to current economic conditions. These statements do not guarantee future performance.