NZD/USD dropped 1% to a six-month low near 0.5740 after the Reserve Bank of New Zealand surprised markets with a 50bps cut to the Official Cash Rate, now at 2.50%. The central bank signaled it remains open to further reductions, citing spare capacity and downside risks to activity and inflation. Market expectations have shifted sharply, with swaps pricing in the OCR potentially falling to 1.75% over the next year, BBH FX analysts report.

Dovish RBNZ guidance sends NZD/USD to six-month low

"NZD underperformed and NZD/USD plunged 1% to a six-month low near 0.5740. The RBNZ delivered a jumbo cut which was only 40% priced-in. The RBNZ slashed the Official Cash Rate (OCR) 50bps to 2.50% and stressed it “remains open to further reductions in the OCR.” According to the RBNZ, “prolonged spare capacity and the associated downside risk to medium-term activity and inflation” supported the case for a 50bps cut."

"In August, the RBNZ projected the OCR to settle around 2.50%. The next forecast update is due November 26, but today’s dovish guidance points to an OCR through closer to the lower bound of the RBNZ’s estimated neutral range (1.60%-4.20%). Indeed, New Zealand’s swaps curve shifted lower, implying an OCR bottoming around 1.75% over the next twelve months (vs. 2.25% previously)."