RBNZ May Preview - A Hawkish Cut of 25bps?
The Market Note by Shaleniie | May 27, 2025
Summary
The Reserve Bank of New Zealand (RBNZ) meets tomorrow and is widely expected to cut their Overnight Cash Rate (OCR) by 25bps to 3.25%. While Q1 data is soft; it hasn’t deteriorated, allowing the market focus to be on policy tone and forward guidance.
Key Expectations
Decision Time: Wed, May 28 at 2PM NZT / 10AM SGT
Current OCR: 3.50%
Market Pricing: Almost unanimous expectation of a 25bps cut
Main Question: Will the RBNZ tilt hawkish despite soft (but not weak) Q1 data?
Data Since Last Meeting
GDP: Rose by 0.7% in Q4’2024 (vs RBNZ forecast of 0.3%)
Business Confidence: Indicators are mixed but have been consistent with an improving (but still sub trend growth) outlook.
- NZIER (Q1): Optimism in forward outlook; current conditions still subdued
- ANZ (Monthly): Confidence remains high, though “Liberation Day” weighed heavily on sentiment (temporarily). Firms activity turned positive y/y in AprilPMIs:
- Manufacturing: Holding above 50 since the start of 2025
- Services: Soft, remains below 50 since 2024Retail Spending: Slowed after a strong finish to 2024
Inflation: Rose from 2.2% to 2.5% y/y (still within RBNZ’s 1-3% band)
Labour Market:
- Unemployment Rate: Steady at 5.1%
- Employment: +0.1% q/q 0.1%
- Wage Growth (LCI): Slowed from 3.3% to 2.9%House Market: Increasing levels of activity in sales and mortgage approvals since H2’2024
Exports: Global Dairy Trade Index dropped from +4.6% to -0.9% last week
Possible Scenarios & Market Reaction
Chart Focus: NZD/USD
Holding above 0.5877 mid-range support
Hawkish tone: retest of 0.6378
Dovish lean: risk of break below 0.5877 toward 0.557
Momentum consolidating ahead of RBNZ decision tomorrow
NZD/USD 3 Day Chart
FX Implications & Positioning
CFTC speculators positioning on NZD is nearly balanced: 49% long, 51% short. That said, the tilt has shifted towards shorts post April 25. With markets and retail relatively neutral, a strong tone either way could spark repricing and volatility in the immediate aftermath of the decision.
My Take
Q1 data isn’t alarming - growth held up, inflation is within target and labour market remains steady. I expect a 25bps cut paired with a hawkish lean, with the July cut left open to data. The RBNZ is also likely to weight global uncertainty, especially around U.S. trade tensions as a risk factor.