New Zealand Dollar Forecast to Weaken as Economy Slows
The New Zealand dollar is forecast to weaken around 6 per cent in the coming months as a slowing economy prompts investors to price in aggressive interest rate cuts from the nation’s central bank.
Economic Slowdown and Tariffs Concerns
The currency weakened to a one-year low versus the US dollar last week as the Reserve Bank of New Zealand’s (RBNZ) downbeat view of the economy and concern over the impact of potential tariffs under Donald Trump’s administration spurred traders to bet on large rate cuts. The swaps market is pricing in a 50-basis-point cut this week, with some seeing a small chance of a 75-basis-point reduction.
Experts Weigh In
“This isn’t going to offer the New Zealand dollar any support in the context of what Trump 2.0 might deliver in the first half of 2025 regarding tariffs and what that means for China and the global growth outlook,” said Ray Attrill, Sydney-based head of FX strategy at National Australia Bank. “Hence we aren’t ruling out NZD dropping to as low as 0.55 next year.”
Quarterly Performance
The kiwi has fallen about 8 per cent so far this quarter aided by the RBNZ’s 75 basis points of rate cuts since August. The greenback’s surge on so-called Trump trades, concern over the knock-on effect of potential US tariffs on China, and paring back of Federal Reserve rate cut bets in the face of a resilient US economy have also weighed on New Zealand’s currency.
Forecast and Technical Analysis
Westpac Banking’s base case is for the kiwi to fall 58 US cents by year-end, with an “extreme low target” of 55 this year or in the first quarter, according to Imre Speizer, a market strategist at the bank. A decisive breach of support at 57.74 US cents its Oct 26, 2023 low would open the door for it to fall towards 55.12, its 2022 low, given there is little technical support in between.
Risks and Cautions
Bearish kiwi investors should still be wary of pullbacks in the currency with it trying to retreat from oversold territory, according to slow stochastics a momentum indicator. The other risk for them would be that the RBNZ sounds less dovish than the market expects.
Conclusion
In conclusion, the New Zealand dollar is expected to weaken in the coming months due to a slowing economy and concerns over tariffs. Investors should be cautious of potential pullbacks and the possibility of the RBNZ sounding less dovish than expected.
FAQs
Q: What is the forecast for the New Zealand dollar?
A: The currency is expected to weaken around 6 per cent in the coming months.
Q: What are the main factors driving the weakening of the New Zealand dollar?
A: The slowing economy and concerns over tariffs are the main factors driving the weakening of the New Zealand dollar.
Q: What is the RBNZ’s view on the economy?
A: The RBNZ has a downbeat view of the economy, which is prompting investors to price in aggressive interest rate cuts.
Q: What is the extreme low target for the kiwi?
A: Westpac Banking’s extreme low target is 55 US cents, which could be reached this year or in the first quarter.
Q: What is the technical analysis of the kiwi?
A: The kiwi has fallen about 8 per cent so far this quarter and has breached support at 57.74 US cents, opening the door for it to fall towards 55.12, its 2022 low.
Q: What are the risks for bearish kiwi investors?
A: Bearish kiwi investors should be wary of pullbacks in the currency with it trying to retreat from oversold territory, and the possibility of the RBNZ sounding less dovish than expected.
Q: What is the conclusion of the article?
A: The New Zealand dollar is expected to weaken in the coming months due to a slowing economy and concerns over tariffs. Investors should be cautious of potential pullbacks and the possibility of the RBNZ sounding less dovish than expected.
