Published: April 23rd, 2025
A new quarterly forecast update from ASB Bank predicts the New Zealand dollar will be in slow mode over the near term thanks to global trade conflict and a subdued domestic recovery.
Pointing to downbeat investor sentiment, the high street lender's analysts wrote ‘If New Zealand's growth prospects were a car, it would be more Toyota Prius than Ferrari 296. The economy is improving but the pace of growth is strictly slow-lane, with tariff tensions likely mitigating recent good news related to commodity exports.’
ASB says it's now looking for NZD/USD to drop further before it sees a meaningful return, likely not before the start of next year.
The Kiwi has already dipped slightly against the Greenback and Yen since Donald Trump's second inauguration and additional US tariffs are expected to strengthen USD's position vis a vis NZD.
Worse, however, are the Kiwi's losses against G10 currencies like Euro and Sterling. These have been more harsh, with GBP/NZD trading at its highest levels since 2016 this week. ASB's revised forecasts suggest these current rates could be overvalued.
The underwhelming outlook comes against a backdrop of steady but restrained economic growth after a period of contraction in 2024.
The New Zealand economy is starting to recover this year, driven by agricultural exports and a rise in Asian tourism.
On an annualized basis, ASB says real GDP growth will likely remain negative through mid-2025 before rising to a projected 2.3 per cent by early 2026. Consumer demand should steadily rise as interest rates fall and consumer purchasing power improves.
Figures from Statistics New Zealand released in late March 2025 showed the island nation's economy grew by 0.7 per cent in the final three months of 2024.
Confirmation that it had left a period of downturn behind should have bolstered NZD and given the Reserve Bank of New Zealand (RBNZ) cover to stop cutting interest rates. Investors, however, seemed unimpressed by the upbeat figures.
The Pound-to-New Zealand Dollar rate (GBP/NZD) was up by half a percent following the print's publication, reaching 2.2479. EUR/NZD was also 0.56% higher at 1.8849.
Analysts said an adjacent sell off in the Australian Dollar held the Kiwi back. An investor note from Commonwealth Bank of Australia noted that ‘NZD/USD had dropped by close to 0.5 per cent in parallel with a lower AUD.’
On the same day New Zealand's quarterly GDP numbers were published, Australian employment data were released showing a significant 52.7k drop in February. Consensus was looking for a 30k lift.
The Down Under labour market data spurred traders to raise expectations for a faster cycle of interest rate cuts by the Reserve Bank of Australia (RBA).
The shift in posture has dragged Australian bond yields down, with a correlated effect on New Zealand bond yields. Both NZD and AUD have been pulled lower by dipping bond yields in their respective countries.
Overall, forex traders see slower Australian growth as a bad sign for New Zealand's economy, despite the upbeat Q4 GDP reading.
A market analysis by Auckland-based ASB said New Zealand's growth drivers in Q4 will struggle to sustain momentum given a backdrop of global headwinds.
The New Zealand Dollar is forecast to gain against most G10 majors into the middle of 2025, according to an analysis by Sydney-based Westpac.
An improving international growth backdrop and a US Dollar set to trend lower will benefit the Kiwi, though Westpac analysts say forex traders should also watch for an uptick in New Zealand's economic growth as the Reserve Bank of New Zealand's (RBNZ) current policy of restrictive interest rates could loosen in the next few months.
‘Auckland central bankers started the RBNZ's easing cycle ahead of some G10 peers and seem intent on moderating that approach ahead of what traders had expected. There has been a notable loosening of financial conditions as retail and wholesale interest rates have moved to levels not seen in years,’ Westpac wrote.
Despite past signals to the contrary, the RBNZ is now thought to be comfortable with relaxing interest rates on an accelerated timeline. ‘As headline CPI inflation is predicted to stay around the mid-point of policymakers' 1-3 per cent target range during the third quarter, the RBNZ sees an environment where they have more freedom to respond to weakening economic indicators.’
Financial conditions in New Zealand have eased notably in recent weeks, with short-term swap rates falling to around 100 basis points, while mortgage rates have dropped by 50-100 basis points.
Westpac analysts believe the RBNZ will likely announce two 25 basis point cuts in its two remaining 2024 meetings. The path for 2025 is naturally more speculative.
In March 2024, analysts at two of The Netherlands' largest banks said the Kiwi was on track to be one of the year's outperformers, despite a recent string of losses.
NZD lost ground against other majors in February after Auckland central bankers held the official interest rate at 5.50%, disappointing some forex traders who were counting on another near-term rate hike. Guidance from the Reserve Bank of New Zealand's (RBNZ) February meeting prompted a selloff and reappraisal of New Zealand interest rate prospects, with bets firming up for a new round of cuts in the Autumn.
In a note to investors, ING Bank's FX Strategy Unit wrote that the RNBZ's statement was ‘less hawkish than expected given that another rate hike looks to be off the table for the foreseeable future. The immediate result has been losses for the New Zealand dollar.’
But ING added that traders ‘shouldn't buy into perceptions of NZD weakness. Over at fellow Dutch banking giant ABN AMRO, currency analysts are in broad agreement. A market analysis published this week says the New Zealand dollar is still on track to outperform’ in 2024.
