Premium Watchlist Recap: May 27, 2025

This week our currency strategists focused on the RBNZ Monetary Policy Statement for potential high-quality setups.

Out of the four scenario/price outlook discussions this week, one discussion arguably saw both fundie & technical arguments triggered to become a potential candidate for a trade & risk management overlay.

Watchlists are price outlook & strategy discussions supported by both fundamental & technical analysis, a crucial step towards creating a high quality discretionary trade idea before working on a risk & trade management plan.

If you’d like to follow our “Watchlist” picks right when they are published throughout the week, you can subscribe to BabyPips Premium.

Check out our review on that discussion to see what happened!

NZD/USD: Tuesday – May 27, 2025

On Tuesday, our strategists had their sights set on the RBNZ monetary policy statement and its potential impact on the New Zealand dollar.

Based on our Event Guide, expectations were for the RBNZ to cut its official cash rate from 3.50% to 3.25%, with markets looking for signals on the future pace of easing amid ongoing trade uncertainty.

With those expectations in mind, here’s what we were thinking:

The “Kiwi Climb” Scenario:

If the RBNZ delivered a hawkish surprise, either by cutting less than expected or signaling a pause in easing, we anticipated this could boost NZD.

We focused on NZD/USD for potential long strategies if risk sentiment was net positive, especially given ongoing USD weakness from trade policy uncertainty and fiscal deficit concerns. In a risk-off environment, AUD/NZD shorts looked promising given the RBA’s recent dovish pivot and Australia’s weaker economic backdrop.

The “Kiwi Collapse” Scenario:

If the RBNZ signaled more aggressive easing ahead or delivered a larger 50bp cut, we thought this could weigh on NZD.

We considered EUR/NZD for potential long strategies in a risk-on environment, particularly given the ECB’s less dovish stance and delayed EU tariff implementation providing euro support. If risk sentiment turned negative, NZD/CHF shorts made sense given safe-haven demand for the franc amid trade tensions.

What Actually Happened

The RBNZ cut rates by 25bp to 3.25% as expected in a 5-1 majority vote, but delivered a somewhat hawkish tone that caught markets off guard.

Key points from the statement and press conference:

• Governor Hawkesby emphasized that rates are now in the “neutral zone” and stressed they are “not on a pre-set path for easing”
• The central bank will evaluate the economy’s reaction to global trade pressures on a “meeting-by-meeting basis”
• Annual CPI rose to 2.5% in Q1 2025, remaining within the 1-3% target band
• Officials highlighted significant economic slack but also noted potential inflationary pressures from higher trade costs

The divided vote and hawkish messaging suggested the RBNZ was becoming more cautious about further easing, despite ongoing global uncertainties.

Market Reaction

This outcome fundamentally triggered our NZD bullish scenarios and, with risk sentiment initially leaning positive due to delayed EU tariffs, NZD/USD became our focus.

Looking at the NZD/USD chart, we saw immediate buying interest after the RBNZ event, sending the pair back above the 61.8% Fib level, pivot point and .5950 minor psychological mark. The pair climbed steadily through the Asian session, extending its climb above the 50% level as Governor Hawkesby’s not-so-dovish comments about not being on a pre-set easing course fueled upward momentum.

The Kiwi’s gains were supported by the stark contrast between the RBNZ’s measured approach and market expectations for more aggressive easing, as well as caution among dollar traders while waiting for trade and tax bill updates.

However, the pair struggled to maintain gains above these levels as broader market themes took center stage. The week’s dramatic tariff-related court rulings, renewed US-China trade tensions, and mixed US economic data created competing crosscurrents that weighed on the risk-sensitive Kiwi.

By Friday’s close, NZD/USD had pulled back toward the .5950 pivot point support area as Trump’s social media blast accusing China of violating their trade agreement, combined with cooler US PCE inflation data, created a challenging environment for risk assets despite the RBNZ’s optimistic undertones.

The Verdict

So, how did it all play out?

Our fundamental analysis correctly anticipated potential NZD strength on a less dovish RBNZ stance, which materialized with the central bank’s hawkish messaging about being in the “neutral zone.”

While our technical analysis accurately identified the resistance-turned-support aligned with the 61.8% Fib that held during the initial reaction, a shift in risk sentiment kept gains in check later in the week.

If traders entered long positions near the area of interest after the hawkish RBNZ decision and press conference, there would have been a chance to catch a decent move just slightly below the .6000 resistance. However, trade management would have been crucial given the competing narratives from broader trade tensions and US developments that emerged later in the week.

Overall, we think this discussion was “neutral-to-likely” supportive of a net positive outcome. The fundamental trigger aligned well with our bullish bias, and the technical levels provided clear guidance for entry.

While the pair closed the week only marginally higher than the event price due to external factors, it rarely traded net negative to both the bias and technical triggers, suggesting the core analysis held up despite challenging broader market conditions.

The key lesson here is that even when event-specific analysis proves correct, broader macro themes can significantly influence follow-through, highlighting the importance of staying aware of multiple market narratives when trading central bank decisions.