What a week it was. The star of the show: the Reserve Bank’s August MPS. After pausing in July, the RBNZ cut the cash rate a further 25bps to 3% last week. But more importantly, the RBNZ signalled further cuts to come (see our full review).

Like the May meeting, last week’s decision came down to a vote. But unlike the May meeting, there was a 4-2 vote (first time in history), with 2 committee members favouring a 50bps cut. The statement, the vote, and the forecasts were clearly (appropriately) dovish.

The OCR track was lowered a massive 30 points from a bottom of 2.85% to 2.55% in March 2026. What does that mean? This is important. The RBNZ has gone from signalling a 60% chance of one last 25bps move to 2.75% at the May MPS, to now an 80% chance of a cut to 2.50%.

Going into the August meeting, only 4 of the 30 forecasters surveyed by Reuters were calling for a 2.5% low in the cash rate. It was an out-of-consensus move, and a bold one for the RBNZ to deliver. We commend them. We have been forecasting, praying and rain dancing for a 2.5% since late 2023. We still are, with another two 25bps cuts to be delivered at each of the RBNZ’s remaining meetings this year.

The central bank we saw last week was one almost completely different from the one we saw in May. And while it’s great to see the RBNZ move towards a stimulatory interest rate setting, … it would have been better delivered three months ago. Around a third of the mortgage book has repriced over the last 3 months onto rates that should have been lower. The transmission is slower than it should have been.

Still, the move is good news for Kiwi households and businesses. Interest rates are moving from providing relief to generating stimulus. Just what the economy needs. And the fall in the Kiwi dollar following the RBNZ’s dovish pivot (though somewhat short lived) adds another layer of relief for our exporters currently facing a headwind of a 15% tariff. Check out our charts of the week for more on the latest moves in financial markets.

The US Federal Reserve was also in the spotlight last week, hosting the annual get together of central bankers at Jackson Hole. Markets had been eagerly awaiting Fed Chair Jay Powell’s opening speech for any hints on their next move. Last year, Powell used his speech to ready markets for rate cuts to begin. And this year, he seems to have readied markets for another cut next month. The Fed has sat on their hands this whole year. But over the weekend, Powell remarked that “the shifting balance of risks may warrant adjusting our policy stance”. With 11 words, the head honcho has swung open the door to a rate cut in September. Markets have gone from pricing about a 70% chance of a September cut to 80%. There was still a sense of caution in Powell’s speech, flagging concerns about high inflation becoming embedded in expectations. Because of that, chances of a 50bps are small. And incoming data will inform whether more rate cuts will follow. Powell’s dovish warning sent US treasuries rallying and the US dollar lower.

Financial Markets

The comments below were provided by Kiwibank traders. Trader comments may not reflect the view of the research team.

In rates, the RBNZ’s dovish pivot saw steep falls across rates

“The RBNZ delivered a dovish 25bp cut to the OCR, prompting a 17bp decline in the 2-year swap rate to 2.95%, a new cycle low. The yield curve steepened, with 10-year yields falling 10bp to 3.95%. Notably, two Committee members voted for a more aggressive 50bp cut, reinforcing a clear easing bias and indicating further rate reductions are possible if medium-term inflation pressures continue to subside. The OCR track was revised materially lower.

Markets are now pricing in 36bp of cuts by November and 44bp by February. The vote for a 50bp cut suggests the possibility of consecutive 25bp reductions at the October and November meetings, contingent on supportive data. The central bank’s baseline projection sees the OCR reaching 2.50%, though there remains flexibility. A speech by Conway on Friday indicated that Q2 weakness is expected to be transitory.

Offshore, yields also moved lower following Fed Chair Powell’s remarks at Jackson Hole, where he signalled a potential rate cut in September. This led to a broad-based decline in yields, with 20bp of cuts now priced for the September FOMC meeting and a total of 54bp by December, up from 48bp previously. Political pressure continues, with Trump undermining the Fed’s independence and advocating for rapid rate reductions, adding to the downward bias in yields.

Attention is now turning to how deeper cuts will reshape yield curves. For the RBNZ, a move to 2.50% would be stimulatory. Markets are beginning to consider the implications of future hikes being equally forceful. This is likely to be reflected in steeper short-end curves, with 1-year rates holding steady and 2-year and longer tenors beginning to price in the potential for tightening.” Ross Weston, Head of Balance Sheet Management – Treasury.

In currencies, the RBNZ’s surprisingly dovish tilt injected fresh life into the Kiwi dollar

“After a sustained spell of subdued currency volatility, the RBNZ’s surprisingly dovish tilt last week injected fresh life into the Kiwi dollar. Since the early April Liberation Day shock, NZD/USD price action has been remarkably contained, with option-implied volatility—a measure of expected future swings—grinding steadily lower across the tenor spectrum and approaching historical lows.

In practice, the Kiwi has been hemmed in by a well-defined interest rate differential and a market now conditioned to recurring U.S. geopolitical and tariff shocks, holding to a muted ~5% range since mid-April. That calm was rattled last week as RBNZ guidance pointed to an OCR of 2.5% by Christmas, putting the well-trodden 0.5850–0.6100 multi-month range at risk of a long-anticipated breakout. Indeed, NZD/USD slipped to an interbank low of 0.5800 on Friday, and a weekly close below the 200-day moving average (0.5833) looked set to trigger deeper downside momentum. Yet order quickly returned after Fed Chair Powell’s Jackson Hole remarks signalled likely September easing, softening the USD and hauling the Kiwi back above both its 200-day MA and multi-month support levels. For now, with OIS markets pricing a terminal OCR of ~2.57% by February 2026, much of the NZD’s downside appears already discounted—barring clear evidence that rates may need to fall beneath 2.5%. As such, USD sellers should be acutely aware of the risks of upside moves, particularly as a clearer Fed easing path begins to play out—and with 2026 looming, when the Trump administration is expected to appoint a likely dovish successor to Powell. With a quiet local calendar in the weeks ahead, near-term Kiwi direction will be driven largely by offshore developments, most notably the evolving U.S. employment picture.

Closer to home, the RBNZ’s pivot has put cross-currencies under pressure—most notably NZD/AUD. Having slipped through the 0.8949–0.9388 76.4% retracement zone, the triple-bottom at 0.8950 has now come into focus. With CFTC data still showing an overall short AUD vs NZD positioning bias, this week’s release of RBA minutes and July CPI will be watched closely. Any hawkish surprises could re-ignite rate divergence risks and put NZD/AUD firmly back under the spotlight.” Hamish Wilkinson – Senior Dealer, Financial Markets.

Weekly Calendar

• Here at home, June quarter retail spending and jobs data are due. With the monthly filled jobs data, the print has often been overstated in the first release, meaning the June 0.1% gain will likely be revised down. Labour demand is still lacking strength, keeping pressure on filled jobs growth.
• Across the ditch, Aussie monthly CPI will likely show inflation ticking higher, albeit still well within the RBA's 2-3% target band. Market consensus expects a 0.5% increase in consumer prices over July, which, helped by base effects, would see the annual rate rise to 2.3% from 1.9%. With inflation well contained, the data should support expectations for another cut from the RBA at its September meeting.
• For financial markets, the minutes of the RBA's August meeting (out Tuesday) and the ECB's July meeting (out Thursday) will provide traders and investors something to chew on. The minutes will be picked apart, with markets looking for any hints on whether and when further interest rate reductions will occur. The ECB paused at its July meeting and are expected to hold again in September as the economy has proven more resilient than expected. The RBA however has further easing to deliver, but appear to favour a more gradual, staggard approach.

See our Weekly Calendar for more