New Zealand’s second-quarter unemployment rate was reported at 5.2%, which is slightly below the forecast of 5.3%. This led to an increase in the kiwi dollar, which retraced briefly before testing previous session highs.
Reserve Bank of New Zealand Rate Cut
The Australian dollar is also experiencing upward movement, trading higher in conjunction with the kiwi. Westpac NZ expects the Reserve Bank of New Zealand to cut the interest rate by 25 basis points on 20 August, with the possibility of further easing if required. They have not provided specific guidance on the future direction or timing of additional rate cuts.
The Kiwi and Aussie dollars are stronger today after New Zealand’s Q2 unemployment rate came in at 5.2%, just beating expectations. This positive data has given both currencies a short-term lift. We are seeing them retest the highest levels of the trading session.
However, we should not ignore the strong possibility of a Reserve Bank of New Zealand rate cut on August 20. The market is anticipating a 25 basis point cut, which would put downward pressure on the kiwi dollar. This makes the current strength look like a temporary reaction.
This forecast for a rate cut is supported by slowing inflation, with New Zealand’s Q2 2025 CPI falling to 3.1%, moving closer to the RBNZ’s target range. The Official Cash Rate has been held at 5.50% for over a year now, so the central bank has room to ease policy. A cut seems very likely given the cooling price pressures.
Trading Implications
For derivative traders, this situation suggests the current strength in NZD/USD could be a selling opportunity. We could use the next two weeks to consider buying put options on the kiwi dollar. This would be a way to position for a potential decline leading into and after the RBNZ decision.
We must remember what happened in a similar situation back in August 2019, when the RBNZ surprised everyone with a 50 basis point cut when only 25 was expected. History shows the bank is not afraid to be more aggressive than the market thinks. This suggests downside risks for the kiwi dollar are significant.
The Australian dollar’s move higher is happening mainly in sympathy with the kiwi. Since the positive news is not directly related to Australia’s economy, the AUD/USD may also lose its recent gains if the RBNZ acts as expected. This makes the Aussie’s current strength questionable as well.
