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NZ dollar vulnerable as yield buffer shrinks, Aussie finds support

ReutersOct 9, 2025 3:15 AM

By Wayne Cole

- The New Zealand dollar languished near six-month lows on Thursday after its yield premium was whittled away to almost nothing, while the Australian dollar benefited from better risk sentiment across global markets.

The kiwi took a gut punch on Wednesday when the Reserve Bank of New Zealand cut cash rates by an outsized 50 basis points to 2.6%, and left the door open to yet further easing as it tries to restart a stalled economy. 0#NZDIRPR

As a result, yields on New Zealand 10-year bonds NZ10YT=RR dropped 12 basis points to 4.145%, the lowest since September last year and just 3 basis points above U.S. yields.

Markets imply an 80% probability of another cut to 2.25% in November, and a 50-50 chance rates could reach 2.0% next year.

"We see a strong case for unambiguously accommodative policy settings to ensure the above-trend recovery necessary to close a now large negative output gap," said Andrew Boak, an economist at Goldman Sachs.

"We now forecast a deeper RBNZ easing cycle with 25bp OCR cuts in both November and February."

Analysts at Citi are even more dovish, predicting three more cuts to 1.75%. Westpac, ASB and ANZ favour just one more move to 2.25%, while Nomura thinks the RBNZ is done for this cycle.

The kiwi dollar was left at $0.5795 NZD=D3, after delving as deep as $0.5737 in the previous session. It would need to break above $0.5844 to reverse the current downtrend.

It also hit a three-year low on the Aussie at A$0.8731 NZDAUD=R, before steadying at A$0.8788. A breach of its 2022 trough at A$0.8695 would take it to lows not seen since 2013.

The Aussie added 0.1% to $0.6592 AUD=D3, having bounced from a low of $0.6556 overnight. It faces major resistance in the $0.6624 to $0.6629 range, with support down at $0.6521.

Futures imply only a 50% chance the Reserve Bank of Australia will ease again at its next meeting in November given signs of stickiness in services inflation. 0#AUDIRPR

The head of Australia's central bank appears before a Senate economics committee on Friday and will no doubt be questioned on the prospects for further cuts.

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