In the early hours on Wednesday, the Reserve Bank of New Zealand will meet again to make a monetary policy decision and is likely to cut interest rates by another 25 basis points. The RBNZ already cut interest rates by 25 basis points to 3% in August, and markets had originally assumed that this would be the end of the cutting cycle. However, following the meeting, the New Zealand central bank took a decidedly dovish stance, leading us to believe that tomorrow's rate cut will not be the last, Commerzbank's FX analyst Volkmar Baur notes.

Weak growth is likely to prevail

"This assessment is also supported by the latest data published from New Zealand. GDP growth in the second quarter was significantly weaker than expected, falling by 0.9% compared to the previous quarter, which was more than anticipated. As a result, economic output in New Zealand in the second quarter was still below the previous year's level, suggesting that the output gap is likely to have widened again."

"In addition, monthly price indicators (an official inflation index is only published once a quarter) recently pointed to a slight cooling of inflation, even though the annual rate remains elevated."

"Overall, weak growth is likely to prevail and the key interest rate is likely to fall to 2.75%. However, the market has already fully priced this in, and most other analysts also expect this move, according to a Bloomberg survey. The kiwi should therefore not be particularly impressed. And the further outlook is also likely to carry less weight than usual this time. Because while the current governor, Christian Hawkesby, will still chair the last monetary policy meeting of 2025 at the end of November, Anna Breman will take over as the new governor on December 1."