NZD/USD adds to dovish RBNZ-inspired losses; slumps to four-month low around 0.5820 area

• NZD/USD attracts heavy selling in reaction to the RBNZ's dovish 25 bps rate cut this Wednesday.
• Some follow-through USD buying further contributes to the steep decline amid a softer risk tone.
• Traders now look to the FOMC Minutes for a fresh impetus ahead of the Fed's Powell on Friday.

The NZD/USD pair adds to the dovish Reserve Bank of New Zealand (RBNZ)-inspired losses and dives to its lowest level since mid-April during the first half of the European session on Wednesday. Spot prices currently trade around the 0.5830-0.5825 region, with bears looking to extend the downward trajectory below a technically significant 200-day Simple Moving Average (SMA).

As was widely expected, the RBNZ decided to lower the official cash rate (OCR) by 25 basis points (bps), to 3.00% at the end of the August policy meeting earlier today. Meanwhile, the accompanying policy statement revealed that the Monetary Policy Committee voted 4-2 for the quarter-point cut, with a minority favouring a larger 50 bps rate reduction. Furthermore, the RBNZ projected inflation returning to target by mid-2026, and highlights spare capacity, stalled growth, and cautious behavior as downside risks.

Adding to this, the central bank stated that if medium-term inflation pressures continue to ease in line with the projection, the Committee expects to lower the OCR further. This, in turn, prompted aggressive selling around the New Zealand Dollar (NZD) amid a slight deterioration in the global risk sentiment. This, along with some follow-through US Dollar (USD) buying, turns out to be another factor that contributes to the heavily offered tone surrounding the NZD/USD pair and the steep intraday decline.

The USD bulls, however, seem reluctant and opt to wait for more cues about the Federal Reserve's (Fed) rate-cut path. Hence, the focus shifts to the release of the FOMC Minutes, due later during the US session. Apart from this, Fed Chair Jerome Powell's speech at the Jackson Hole Symposium might offer a fresh insight into the central bank's policy outlook. This, in turn, will drive the USD and provide a fresh impetus to the NZD/USD pair. Nevertheless, the fundamental backdrop backs the case for further near-term losses.