Published: June 18th, 2025
The New Zealand Dollar began the week on a softer footing against every G10 major on news that Israel's air force was continuing to mount air assaults on Iranian targets and assassinations against Iranian military leaders. Iran has launched multiple waves of missiles and drones against Israel in retaliation.
Markets reacted quickly, as oil prices rose, US equity futures sank, and safe-haven assets like gold and silver rallied strongly. Though equities were under pressure, the US Dollar Index was higher at the start of the week.
A report from Iran's state broadcaster said the head of the country's Islamic Revolutionary Guard Corps was killed in an Israeli attack.
A note to investors from Barclays currency strategy unit said that ‘of the world's major currencies, the commodities-dependent Kiwi is arguably most exposed to rising global geopolitical tensions.’
Oil prices, the ultimate measure of investor sentiment on Middle East affairs, surged last Friday but began falling back on Monday. An improved market mood suggests investors believe the prospect of a ‘hot war’ escalation in the conflict remains limited.
Barclays commodities analysts expect prices to stabilize and return to recent levels over the next couple of weeks.
That's positive news for stock markets and will weigh on USD, Barclays analysts note, which should lend NZD a helping hand against the Pound and Euro.
‘While the Kiwi is often first to fall when political tensions flare up, this time it could be the biggest winner when sentiment bounces back.’ Unaffected by upbeat data
NZD's special place in the G10 ecosystem means it sometimes reacts to market signals in unexpected ways. In March of this year, figures from Statistics New Zealand showed that the island nation's economy grew by 0.7 per cent in the final quarter of 2024.
Markets seemed to ignore 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.
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.
Analysts said an Australian Dollar sell off sparked by surprisingly poor labour market data was one factor holding NZD back. An investor note from Commonwealth Bank of Australia said ‘NZD/USD dropped by close to 0.5 per cent in parallel with a lower AUD.’
On the same day the GDP numbers were published, new Australian employment data showed a significant 52.7k drop, defying a consensus prediction of 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 was forecast to gain against most G10 majors into the middle of 2025, according to a November 2024 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 had eased at the end of 2024, with short-term swap rates falling to around 100 basis points, while mortgage rates had dropped by 50-100 basis points.
Westpac analysts believed the RBNZ would likely announce two 25 basis point cuts in its two remaining 2024 meetings.
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, as bets firmed 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 were in broad agreement, saying the New Zealand dollar was still on track to outperform’ in 2024.
