The New Zealand dollar weakened against major currencies after the Reserve Bank of New Zealand (RBNZ) released a statement that markets interpreted as leaning towards a more cautious approach to future interest rate hikes.

The RBNZ’s comments suggested a concern about the potential impact of a slowing global economy on New Zealand’s growth prospects. This fueled speculation that the central bank might be less inclined to raise interest rates as aggressively as previously anticipated, prompting investors to reduce their holdings of the New Zealand dollar.

Analysts noted that the statement highlighted both upside and downside risks to the inflation outlook, leading some to believe the RBNZ is adopting a more balanced and data-dependent approach. This contrasts with earlier signals that strongly favored further tightening to combat inflation.

The currency’s decline reflects the sensitivity of the New Zealand dollar to changes in interest rate expectations, as higher rates typically attract foreign investment and support the currency’s value. The dovish shift in the RBNZ’s communication has therefore diminished the attractiveness of the New Zealand dollar relative to currencies backed by central banks with a more hawkish stance.