NZD weakness likely as RBNZ cuts

The RBNZ (Thursday) is narrowly expected to cut rates next week for the fourth time this year, lowering the cash rate by 25bp to 2.5%. This would fully reverse last year's rate hikes. A cut is expected given a weaker outlook and with average underlying inflation remaining below the RBNZ's target. 

That said, the RBNZ might want to extend its pause to gather more information on the economy, particularly when one of its key underlying inflation measures is tentatively picking up for the first time in several years. In terms of the RBNZ's updated outlook, the forecast profile will build in a further cut next year, as well as a weaker exchange rate. 

"We recommend being short NZDUSD going into the meeting, considering that a rate cut is not fully priced", notes Barclays.