Insights 
VT 
According to Brown Brothers Harriman, the GDP contraction leaves room for rate cuts, with the RBNZ having suggested possible reductions in September. Commerzbank forecasts a 25-basis-point cut as the probable outcome, noting the market’s anticipation and muted effect on the New Zealand Dollar.
Us Dollar Impact
The US Dollar remains robust due to political and fiscal uncertainties in France and Japan, which impact the Euro and Yen. Despite expectations of rate cuts by the US Federal Reserve, the Greenback’s potential increase is limited.
The focus for us is squarely on the RBNZ decision tomorrow. The market is positioned for a cut, but the real question is whether it will be 25 or 50 basis points. Implied volatility in one-week options has spiked above 15%, signaling traders are braced for a significant move.
If the RBNZ delivers a 50-point cut, we can expect the Kiwi dollar to break below the 0.5800 level. This would be a response to the concerning 0.9% GDP contraction we saw last quarter and the unemployment rate recently ticking up to a three-year high of 4.5%. A move like this would favor traders holding put options or short NZD/USD futures.
Effect of Empirical Data
However, a standard 25-point cut is largely priced into the market and might not trigger a sharp sell-off. We saw a similar situation back in September 2025 when a 25 bps cut led to a brief dip before the currency recovered. The RBNZ’s forward guidance will be more critical than the cut itself in this scenario.
On the other side of the trade, the US dollar’s strength is limited. The US jobs report from last Friday showed a cooling labor market, which reinforces our expectation for a Federal Reserve rate cut later this month. This dynamic should provide a floor for NZD/USD, preventing a complete collapse even with an aggressive RBNZ.
Therefore, the immediate strategy depends on anticipating a surprise from the RBNZ, as a standard cut is already accounted for. Over the next few weeks, any further weakness in the Kiwi will be countered by expected weakness in the Greenback. This suggests options strategies that profit from a confirmed downward break but have a defined risk, such as buying puts, could be prudent.
