NZD/USD weakens to near 0.5900 on dovish RBNZ bets, geopolitical risks

NZD/USD edges lower to around 0.5910 in Wednesday’s Asian session. 

The RBNZ is anticipated to cut its OCR by 50 bps next week.

Geopolitical risks could boost the USD and create a headwind for NZD/USD. 

The NZD/USD pair trades in negative territory near 0.5910 during the Asian session on Wednesday. The rising expectations of interest rate cut by the Reserve Bank of New Zealand (RBNZ) next week and geopolitical risks weigh on the riskier asset like the Kiwi.  

ANZ chief economist Sharon Zollner expects the RBNZ to cut its Official Cash Rate (OCR) by 50 basis points (bps) next week, bringing the rate to 4.25%. “If there is going to be a surprise, a larger cut seems likelier than a smaller one,” added Zollner. Markets are fully pricing in a 50 bps reduction, with 12% odds of a larger 75 bps rate cut. The rising bets of the RBNZ are likely to weigh on the Kiwi in the near term. 

Elsewhere, the People’s Bank of China (PBOC) announced to leave its Loan Prime Rates (LPRs) unchanged on Wednesday. The one-year and five-year LPRs were at 3.10% and 3.60%, respectively. 

On the other hand, analysts expect incoming US President Donald Trump's policies could reignite inflation and might slow the path of interest rate cuts. This, in turn, could lift the USD against the New Zealand Dollar (NZD). Markets have pared bets for a 25 basis points (bps) interest-rate cut at the December meeting to less than 59%, down from 76.8% a month ago, according to the CME FedWatch Tool.