Market Analysis

Dollar Holds Gains, Kiwi Bounces Back as RBNZ Slows Aggressive Rate Cuts

Amos Simanungkalit · 19 Feb96.6K Views

Image Credit: Reuters

The U.S. dollar remained steady on Wednesday as investors monitored tariff threats and ongoing Russia-Ukraine peace talks. Meanwhile, the New Zealand dollar recovered some losses after the central bank indicated it would slow its aggressive rate cuts.

The Reserve Bank of New Zealand (RBNZ) lowered its benchmark rate by 50 basis points to 3.75% on Wednesday, in line with expectations. This cut brings the total easing to 175 basis points since August, as the central bank seeks to support a sluggish economy. However, the RBNZ signaled that future cuts would be smaller, suggesting the end of the easing cycle is near. The kiwi rose 0.28%, trading at $0.572.

Economists at Westpac predict smaller cuts of 25 basis points at the RBNZ's April and May meetings, expecting a return to trend growth by then while inflation remains within the top half of the 1-3% target range.

In the broader currency market, most currencies were stable as investors weighed the latest tariff threats from U.S. President Donald Trump and the uncertainty following Russia-Ukraine peace talks that ended without European or Ukrainian representatives present. Ukrainian President Volodymyr Zelenskiy postponed his visit to Saudi Arabia to avoid legitimizing the U.S.-Russia talks.

Russia made stronger demands, particularly insisting that NATO should not offer membership to Ukraine. Hopes for a peace deal had pushed the euro to a two-week high last week, but the currency has since weakened. It was up 0.06% at $1.0451, with analysts noting the divisions between the U.S. and Europe on the conflict.

The U.S. dollar surged on Tuesday, aided by the euro's softness, but remained near a two-month low of 106.56, reached on Friday, despite tariff announcements. Trump stated his intention to impose tariffs of about 25% on autos, semiconductors, and pharmaceuticals, but details won't come until April 2. Analysts noted that if Trump’s tariff threats are seen as exaggerated, it could put pressure on the U.S. dollar.

Investors were also awaiting the release of the Federal Reserve's January meeting minutes for insight into how policymakers are factoring in the risks of a global trade war. Markets have priced in 36 basis points of Fed rate cuts for 2025.

The dollar index, which tracks the U.S. dollar against a basket of currencies, remained unchanged at 106.97. Against the yen, the dollar weakened 0.16% to 151.83. Expectations for a rate hike by the Bank of Japan in July have supported the yen, although questions remain about the extent and pace of tightening.

Sterling was mostly flat at $1.26175 after briefly hitting a two-month high of $1.2641 earlier in the day, ahead of the UK’s inflation data release. The Australian dollar rose 0.17% to $0.63645, following data showing wages grew at their slowest pace in over two years in the fourth quarter.