Kiwi Dollar Crumbles as GDP Shock Fuels Aggressive Rate Cut Bets

The New Zealand Dollar (NZD) faced a brutal sell-off on Thursday, plunging over 1% against the Greenback to test the 0.5900 handle, as dismal economic growth data forced markets to recalibrate the Reserve Bank of New Zealand's (RBNZ) policy trajectory.

GDP Contraction Exceeds Worst Fears

Official data released by Stats NZ revealed that the economy contracted by 0.9% in the second quarter, a stark deviation from the median economist forecast of a modest 0.3% decline. This print not only reverses the prior quarter's 0.9% growth but also underscores the severity of the domestic slowdown.

The internal details of the report paint a grim picture:

The data confirms that high interest rates have successfully strangled demand, perhaps too effectively, leaving the RBNZ with little choice but to accelerate its easing cycle.

Markets Eye 50bps Cut in October

Reaction in the fixed-income space was immediate. Two-year swap rates tumbled 10 basis points to 2.8%, levels last seen in December, as traders stampeded toward dovish bets.

Major financial institutions are rapidly updating their forecasts. Westpac and Capital Economics have both flagged a high probability of a 50 basis point rate cut at the RBNZs October meeting. Swap market pricing suggests a one-in-three chance of a jumbo cut, up significantly from prior sessions.

With business investment stalling and consumer confidence near multi-year lows, the “soft landing” narrative has effectively evaporated. For NZD/USD traders, the path of least resistance appears lower, as the yield advantage that once supported the Kiwi continues to erode.