The New Zealand Dollar retreated more than 1% against its US counterpart on Wednesday, after the Reserve Bank of New Zealand surprisingly slashed its official cash rate by 25 basis points to 5.25% at its August policy meeting.

It has been the first rate cut since March 2020, while it confounded market consensus of a hold at 5.5%.

The RBNZ also forecast a cash rate at 4.92% by the end of this year and at 3.85% at the end of 2025.

“With headline CPI inflation expected to return to the target band in the September quarter and growing excess capacity expected to support a continued decline in domestic inflation, the Committee agreed there was scope to temper the extent of monetary policy restraint,” the central bank stated.

RBNZ Governor Orr said at the regular press conference that New Zealand was likely headed towards a period of low and stable inflation and the central bank could begin re-normalizing interest rates.

Meanwhile, market focus now sets on the US inflation report, which may provide more clues on the Federal Reserve’s interest rate trajectory.

Currency Pair Performance

As of 6:34 GMT on Wednesday the NZD/USD currency pair was losing 1.14% to trade at 0.6008, as it erased the gain from Tuesday.

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