What next for New Zealand interest rates and the dollar?

The decision by the Reserve Bank of New Zealand (RBNZ) to cut rates to 3.25% leaves our prediction that rates will be 3.0% by the end of the year on track and has helped achieve one of our other forecasts, namely a weakening in the New Zealand dollar to US$0.70. In contrast to the consensus view, we think that interest rates are more likely to fall further next year than rise back. This could result in the New Zealand dollar weakening to US$0.65 or below.