The New Zealand dollar is experiencing weak performance in the foreign exchange market. Analysts noted a risk-off sentiment that negatively impacts currency strength.
New Zealand’s economy showed better-than-expected recovery, with real GDP increasing by 0.7% quarter-on-quarter in Q4. This growth surpasses expectations, aided by increased spending from international visitors in various sectors.
Reserve Bank Policy Outlook
The Reserve Bank of New Zealand plans an additional easing of 75 basis points over the next year, potentially lowering the policy rate to 3.00%. The swaps market is pricing in a higher possibility of a 3.25% terminal policy rate, which could provide some support for the NZD.
Despite the economy showing a stronger-than-expected rebound in the last quarter, the currency remains under pressure. The cautious mood in global markets has taken precedence, limiting any upside that might have come from recent growth figures. The influx of spending from travellers provided a boost, but broader concerns continue to weigh on the currency’s value.
Monetary policy is also playing a role. While the central bank aims to reduce borrowing costs with further rate cuts, markets have a slightly different view on where rates might eventually settle. The pricing in swaps suggests traders see the terminal rate holding somewhat higher than policymakers anticipate. If this view gains further traction, it could work in favour of the currency, at least to some extent.
Market Sentiment And Future Outlook
Looking ahead, the difference between market expectations and official guidance will need close monitoring. If policymakers maintain a firm stance on easing, while traders adjust their own assumptions upwards, it could create opportunities. However, if risk sentiment remains subdued, gains may continue to prove short-lived.
As we navigate the coming weeks, watching how external conditions evolve will be just as important. If risk aversion deepens, it may limit any support provided by interest rate expectations. On the other hand, any improvement in confidence could help stabilise market positioning. Thus, careful observation will be required to determine whether rates or broader sentiment dictate the next move.
