PRECIOUS METALS: Gold - Price Action Shows Momentum Stalling

The pace of NZ’s economic recovery appears to have disappointed the MPC with Q2 GDP expected to contract again. The MPC decided to cut rates 25bp to 3% by a vote of 4-2 with two members voting for a 50bp reduction. The MPC said that the OCR path was a “central expectation” “needed to ensure inflation” is sustainably at the band mid-point and it was revised lower which was said to likely provide “sufficient signalling effects”. The revised OCR path now troughs 30bp below the May assumption at 2.55% - the bottom of the RBNZ’s estimated neutral range.

• The revised OCR path implies another 43bp of easing by year end with 16bp in Q1 2026. This suggests that the last two meetings of 2025 on October 8 and November 26 are both “live” with around an even possibility of another one in February 2026. However, the MPC was clear that it remains highly data dependent.
• Headline inflation was revised higher over H2 2025 and H1 2026 and is forecast at 2.2% in Q4 2026 with it not returning to the 2% mid-point of the target band until H1 2027. It is now expected to be at the top of the band in Q3 2025.
• Rates were cut by 25bp as upside and downside risks were seen as “broadly balanced”, financial conditions continue to ease due to previous cuts and the OCR would signal the MPC’s easing bias.
• The case for a 50bp cut included “declining inflationary pressure and significant spare capacity”, global uncertainty could have “self-reinforcing” effects on domestic demand, a larger cut would send a clearer signal and excess capacity would put downward pressure on inflation.
• Arguments to hold rates were discussed which included global uncertainty had eased since May, the full effect of previous easing was yet to be felt, July data “suggest some improvements” and inflation is close to the top of the band and near-term expectations are rising. One member supported this view.

NZGBs gap 9-12bps richer after the RBNZ cut the OCR by 25bps to 3.0%, as expected (4–2 vote; some favoured a 50bp cut).

• Forward guidance sees the OCR averaging 2.71% in 4Q 2025, 2.56% in 2Q 2026, and 2.59% in 3Q 2026 (down from May’s trough forecast of 2.9%). Indicates scope for further rate cuts if inflation pressures ease; forecasts imply a good chance of two more 25bp cuts.
• GDP seen contracting 0.3% q/q in 2Q 2025 but growing 0.3% q/q in 3Q 2025. Risks to the outlook remain both to the upside and downside.
• Bottom line: RBNZ delivered a widely expected rate cut to 3%, signalled a lower future OCR path, and left the door open for further easing if inflation moderates. Markets responded with a weaker NZD and higher local equities.
• Swap rates are 9-12bps lower after the decision.
• RBNZ dated OIS pricing has shunted softer for meetings beyond August. Pricing is 14-18bps softer out to July 2026. 31bps of cumulative easing is priced by November 2025. 

With policy makers signaling there is scope to lower borrowing costs further if inflation pressure ease the NZD/USD has quickly moved lower and is now testing some pivotal support. Is this enough for the NZD to break lower and reignite the momentum lower ? Together with a market that is paring back USD shorts into Jackson Hole it does leave the NZD vulnerable.

Fig 1: NZD/USD Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P