NZD Analysis & Recent Weakness Why has the NZD been the weakest major currency amid recent volatility? Let’s break down the drivers—from monetary policy to China’s slowdown—and whether this underperformance is justified. --- 1) Monetary Policy Divergence The RBNZ has aggressively cut rates (125 bps in 2024) and signaled further easing, including a likely 50 bps cut in Feb 2025. Meanwhile, the Fed’s hawkish tilt (delayed rate cuts, inflation concerns) boosted the USD. This policy gap has crushed NZD/USD to 2-year lows. --- 2) China’s Economic Troubles China (NZ’s largest trade partner) faces weak demand and deflationary pressures, hurting NZ exports. Fears of a US-China trade war under Trump initially spooked markets, though tariff delays later eased tensions. NZD remains vulnerable to China's slowdown. --- 3) Domestic Recession & Structural Issues NZ’s economy is in recession, with record emigration (78K in 12 months) causing labor shortages and stagflation risks. The RBNZ’s “front-loaded” easing aims to revive growth but weakens the NZD further. --- 4) Is a Rebound Possible? Tailwinds exist: - RBNZ may slow rate cuts if inflation rebounds. - Improved global risk appetite (AI boom, Fed pivot hopes). - Delayed US tariffs on China. But structural headwinds (trade deficits, low rate differentials) limit upside. --- Bottom Line: NZD’s weakness is justified by policy divergence, China risks, and domestic struggles. While tactical rebounds are possible, the path of least resistance remains downward into H1 2025. However: All of the fundamentals above, are most likely priced in, given that we have seen a strong rebound off the multi-year lows. This also comes with Trump reaching deals on tariffs with Mexico and Canada which will be weakening the dollar. There is also $9.2 trillion USD debt that is maturing or will be refinanced in 2025. The US will be forced to cut rates.
Yeah, I know...North Island, South Island, and those bastards on Stewart Island. Just kidding...I did my 6th grade report on NZ!!