Singapore: The US dollar fell on Thursday as the New Zealand dollar jumped to a three-week peak after the Reserve Bank of New Zealand unexpectedly turned hawkish, and as traders ratcheted up bets for deeper Federal Reserve interest rate cuts into 2026. The kiwi leapt around 2 percent against the greenback after the central bank delivered a widely expected 25-basis-point cut but signaled its 16-month easing cycle is effectively done, with there now an over-80-percent chance assigned to a December US rate cut and more than 90 basis points of easing priced out through end-2026 — Nov. 27, 2025.
A rate discrepancy sours the US dollar as the kiwi soars.
In late Asian trade, the US dollar index was almost flat at 99.4 and still several steps below the six-month peak it hit a week ago and was on track to deliver its most significant weekly loss in four months, a retreat dealers blamed on illiquid movements around Thanksgiving as well as even more certainty that the Fed’s next act will be to ease rather than tighten – witness Reuters data.
Elsewhere, the New Zealand dollar rallied to $0.5730, its highest level since early November, building on gains that followed the RBNZ’s statement that further cuts were unlikely, with markets potentially needing to price in hikes if growth picks up and prices do not fall. New data showing retail sales rose 1.9 percent in the third quarter, and a record high in ANZ business confidence also kept them on their toes. At the same time, Westpac strategist Imre Speizer said, “Kiwi green shoots are really starting to mushroom quite quickly now.”
The RBNZ cut its Official Cash Rate by 0.25 percentage points to a record-low 2.25 percent, moving in a widely-expected five-to-one vote but abandoning an explicit easing bias and saying further action will be data-dependent, based on how medium-term inflation and growth pans out. In its official statement accompanying the OCR, the central bank noted that there was still considerable spare capacity. Still, it expected inflation to return towards 2 percent by mid-2026, a profile that leaves policy firmly on hold and has some analysts suggesting the next move could one day be up rather than down.
The hawkish shift marks a sharp turn from an aggressive period of easing that began in 2024. The RBNZ had delivered a bigger-than-expected 50-basis-point cut to the 2.5 per cent benchmark in early October, which marked its lowest level since mid-2012, as chronic spare capacity and slow domestic demand sapped growth, according to Trading Economics data. Just days ago, the New Zealand dollar lingered around seven-month lows of approximately $0.56 against the US dollar as investors warmed to another dovish signal ahead of this week’s pivot.
Fed cuts, and dollar rally fades are priced in
Markets have meanwhile spent the week gradually pricing in more Fed easing, which has been taking the US dollar down across the board. Fed funds futures now price in about an 85-per cent chance of a 25-basis-point rate cut at the Dec. 10 meeting, up from about 30 per cent a week ago, according to a recent Reuters report based on the CME FedWatch tool.d J.P. Morgan also moved its base-case call to Decemberon Thursdayl.
Softer US retail sales and consumer confidence earlier in the week had already undermined the US dollar. They stoked risk currencies, keeping the greenback on track after that data for its biggest weekly loss in 2-1/2 months as traders pulled forward expectations for a first cut – something which was flagged in a separate Reuters report. Rate options markets subsequently saw an increase in hedging as investors positioned for a potentially more dovish Fed path all the way up to 2026.
For now, a combination of stronger local New Zealand data and a firmly dovish repricing of US policy sees the kiwi among the best performers in major currencies, while the US dollar is on the back foot. Strategists said thin liquidity around the holiday season could exacerbate intraday moves, but that the overall theme remained one of policy divergence: an RBNZ that, in practice, is now done with cutting rates versus a Fed that markets believe still has room to ease.
