Insights 
VT 
The Role of the Reserve Bank of New Zealand
The Reserve Bank of New Zealand (RBNZ) serves as the country’s central bank, focusing on maintaining price stability and sustainable employment. The RBNZ’s policies impact the New Zealand Dollar’s value by adjusting the Official Cash Rate (OCR) to control inflation.
Quantitative Easing (QE) is a tool the RBNZ may use to boost the money supply in dire situations. This involves printing money to purchase bonds, potentially weakening the NZD as seen during the COVID-19 pandemic. Factors such as employment impact inflation, with the RBNZ aiming to manage this balance without accelerating prices.
With the New Zealand Dollar trading near 0.5800, we are watching tomorrow’s Reserve Bank of New Zealand decision very closely. The key question is not if they will cut the Official Cash Rate, but by how much. The market is split between a standard 25 basis point cut and a more aggressive 50 basis point “jumbo” cut.
Recent data strongly supports the case for a larger cut, which would put further downward pressure on the NZD/USD pair. The 0.9% economic contraction in the second quarter of 2025 was a major red flag. More importantly, we saw the latest Q3 inflation data from Stats NZ show headline CPI fall to 2.8%, putting it squarely within the RBNZ’s 1-3% target band for the first time in years.
Given the high uncertainty around the RBNZ’s move, we see an opportunity in options. Buying NZD/USD put options with a strike price below 0.5800 offers a way to profit from the volatility. This strategy would pay off significantly if a 50 basis point cut is delivered, while capping potential losses if the RBNZ disappoints with a smaller cut.
Global Currency Market Dynamics
Meanwhile, the US Dollar continues to show surprising strength across the board. Even with a US government shutdown and market pricing from the CME FedWatch Tool showing an over 80% chance of a Fed rate cut later this month, the dollar is outperforming. This strength is driven by its safe-haven status amid growing political instability in Europe and Asia.
Global issues are fueling the flight to the dollar, making it the cleanest shirt in the dirty laundry. The recent resignation of France’s Prime Minister has weakened the Euro, while Japan’s new leadership is openly pushing for policies that will likely keep the Yen weak. This environment makes shorting currencies against the US Dollar an attractive strategy.
We have seen this pattern before, particularly during the initial risk-off phases of the 2008 financial crisis and the 2020 pandemic. In those times, the US Dollar strengthened significantly as global capital sought safety, even when US domestic economic data was poor. The current situation, with weak non-farm payrolls of only 150,000 reported for September 2025, mirrors this historical dynamic.
The clear trade is to maintain a bearish outlook on NZD/USD. We can use futures to establish short positions, looking for a break below the 0.5800 level following the RBNZ announcement. Any brief rally resulting from a smaller-than-expected 25 basis point cut should be viewed as a new opportunity to sell.
