Insights 
VT 
The New Zealand Dollar (NZD) rallied after initial weakness following weak Q3 labour data. This data suggested a weakening employment scenario, with market anticipation fully supporting a November Reserve Bank of New Zealand (RBNZ) rate cut.
Employment figures showed no quarterly growth in Q3, compared to a -0.2% in Q2, falling short of the expected 0.1%. The unemployment rate increased by 0.1 points to 5.3%, the highest since Q4 2016, and the participation rate also fell by 0.2 points to 70.3%.
Private Wages And Upcoming RBNZ Decision
Private wages maintained consensus and RBNZ forecasts at 0.5% in Q3, down from 0.6% in Q2. The upcoming RBNZ policy decision set for November 26 sees markets anticipating a 25 basis points cut to 2.25%.
The swaps market indicates the policy rate could fall to between 2.00% and 2.25% within the next six months. This adjustment is closer to the lower bound of the RBNZ’s neutral range estimation. However, ongoing robust global economic activity is helping to counterbalance the NZD’s weakening due to looser RBNZ policy expectations.
Based on the soft Q3 labor data, we see the Reserve Bank of New Zealand as being on a clear path to cut interest rates later this month. The market has fully priced in a 25 basis point cut on November 26, taking the policy rate to 2.25%. Since this expectation is already baked into the currency’s value, the initial NZD sell-off was quickly reversed.
RBNZ Forward Guidance And Global Economic Outlook
With the rate cut itself now a forgone conclusion, the real trading opportunity will be in the RBNZ’s forward guidance. We see value in using options to trade the event, as any hint that this is a “one and done” cut could spark a sharp rally in the Kiwi dollar. Conversely, a more dovish tone suggesting further cuts into 2026 would pressure the currency lower.
The downside for the NZD is currently being limited by solid global economic activity. For instance, the Global Dairy Trade Price Index, a key indicator for New Zealand’s main export, has climbed 4.2% over the past month, suggesting strong international demand. The latest IMF outlook from October also supports this, forecasting steady global GDP growth of 2.9% for the upcoming year.
We must also watch the growing policy divergence with major central banks. Looking back at the US Federal Reserve’s meeting last week, they held their benchmark rate firm at 5.50% with a continued hawkish stance. This widening interest rate differential will likely act as a headwind, capping significant NZD rallies against the US dollar in the coming weeks.
