Risks skewed towards an RBNZ cut at Thursday's policy meet

Reserve Bank of New Zealand (RBNZ) is set to announce monetary policy decision on Thursday and economists remain split as to whether New Zealand will reduce interest rates to fresh record low of just 2.0 percent.

"The RBNZ is expected to leave interest rates unchanged at 2.25 percent, although there is a risk of a 25 basis point cut to 2 percent, notes ANZ in a report.

Expectations of inflation have fallen to lows that were last seen in the 1990s and the NZD TWI is trading 4.8 percent above the RBNZ's September forecast. The RBNZ is one of the few central banks that can actually weaken its currency via rate cuts as it has a fairly steep yield curve and the highest starting monetary policy rate.

"We think the risks are high for a cut this week and if not now then pre-announcing a cut at the August meeting," said Morgan Stanley in a report.

After surprising the markets in March by lowering its benchmark interest rates, should the RBNZ surprise again by not cutting rates, the NZD/USD pair could continue soaring higher in the near-term.