Published: April 30th, 2025
In a strategy and research note published this week, MUFG analysts wrote that the Kiwi's standout performance in April 2025 makes it the second-best performing G10 currency for the month-to-date, keeping pace with safe haven fiats like EUR and CHF.
However, NZD's bout of Spring outperformance isn't being reflected in other commodity currencies like the Australian Dollar and Norwegian Krone. That suggests global headwinds will soon come calling.
‘As global growth slows in response to growing trade and tariff uncertainty, plus tightening financial conditions, we believe the New Zealand Dollars positive month-long run is unlikely to be sustained.’
Earlier this month the Kiwi plummeted when US President Donald Trump's ‘Liberation Day’ tariffs came in higher than expected, sending skittish investors looking for safety on expectations that global trade and economic growth would cool.
Commodity currencies dependent on raw materials exports and global sentiment like NZD all took a hit. However, the weakness ended quickly then reversed. At time of writing, the Kiwi was up nearly 4.8 per cent against the Greenback for the April MTD, but flat against the Euro.
Looking ahead, MUFG analysts believe the Euro stands to benefit most from a New Zealand Dollar setback.
‘EUR is better positioned to reap the upside from aditional de-risking by global forex traders.’
In late March, figures from Statistics New Zealand showed that the island nation's economy grew by 0.7 per cent in the final quarter 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. Yet traders seemed intent on ignoring the good news.
The Pound-to-New Zealand Dollar rate (GBP/NZD) was up by half a percent on Monday, March 24th, reaching 2.2479. EUR/NZD was also 0.56% higher at 1.8849.
Analysts said an Australian Dollar sell off sparked by surprisingly poor labour market data was holding NZD 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 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 saw 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 slowing trade.
The New Zealand Dollar was forecast to gain against most G10 majors into the middle of 2025, according to an earlier analysis by Sydney-based Westpac.
An improving international growth backdrop and a US Dollar set to trend lower was expected to benefit the Kiwi, though Westpac analysts said 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 was thought to be comfortable with relaxing interest rates on an accelerated timeline in the first half of 2025.
‘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 had eased notably in March, with short-term swap rates falling to around 100 basis points, while mortgage rates have dropped by 50-100 basis points.
Westpac analysts said the RBNZ would 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.
The New Zealand Dollar fell when the RBNZ cut its own official interest rate forecasts from 5.69 per cent in November 2023 to 5.60 per cent in February 2024, reducing the implied probability of a rate rise to below 40 per cent.
