NZD Steadies After Dovish RBNZ Survey Fuels August Rate Cut Expectations

The New Zealand Dollar (NZD) stabilized after hitting two-week lows on Tuesday following a dovish survey from the Reserve Bank of New Zealand (RBNZ).

The RBNZ's survey indicated lower short-term inflation expectations, a key metric for setting monetary policy. Two-year-ahead inflation expectations fell to 2.03% in the latest quarter, down from 2.33%, moving closer to the midpoint of the RBNZ's 1-3% target band.

The decline in inflation expectations has reinforced market bets that the central bank could begin cutting the Official Cash Rate (OCR) as early as August, with a quarter-point cut now seen as more likely than not. The NZD/USD dipped to a two-week low of 0.6120 before recovering to trade around 0.6135.

The survey's findings have shifted the odds for an August rate cut, with a 70% probability of a 25-basis-point reduction at the RBNZ's August 14 meeting.