The Kiwi dollar has broadly outperformed our expectations. And that’s despite the weak local economic backdrop. It’s all
about interest rate differentials. And the RBNZ has maintained a relatively hawkish tone, compared to its central
banking peers.The timing of rate cuts is one thing – and we’re still waiting for the Fed to lead the RBNZ. Magnitude of cuts is
another – and we believe the RBNZ will be forced to ease policy at a greater rate than its peers.Near-term, the Kiwi will likely remain elevated as the RBNZ’s hawk-like feathers fly higher. Beyond, the cooling in
global demand and easing in inflation should weigh on the Bird. We expect the Kiwi to ultimately fall into a 55c-59c
range in 2025. But it’s likely to be a volatile downward glidepath.
Since our FX Tactical in April, the Kiwi dollar has broadly outperformed our expectations. We had expected the Kiwi to
be trading in closer proximity to a 57-59c range, with the clear deterioration in the economy. But the Kiwi is currently
trading around 61c. For traders, it’s all about interest rate differentials. Not even the weak economic data of late has
spurred much (sustained) price action. Instead, it’s inflation prints and central bank statements that set the
trajectory of exchange rates. And the relatively hawkish tone of the RBNZ continues to support the Kiwi dollar. Although
we have also been surprised by the hawkish tone out of the Fed, as the US economy continues to outperform. We are still
waiting for the Fed to lead the RBNZ.
As we noted in March: “If the Fed leads, then the Kiwi currency should hold up against the greenback, helping to ease imported inflation. We
need that sort of help. It is only when the RBNZ comes into action that the Kiwi is likely to depreciate, helping
exporters. Indeed, we see the Kiwi holding strong near term, before falling to 57c by year-end. It is only when the RBNZ
comes into action that the Kiwi is likely to depreciate, helping exporters. Indeed, we see the Kiwi holding strong near
term, before falling to 57c by year-end.” (Soft landing nirvana, March 2024)
The Kiwi may have regained flight, but it still faces the same headwinds. We stick with our long-held forecast for the
Kiwi flyer of 57c by year-end. Although the risk is towards a postponement of that descent until 2025. Because the RBNZ
may choose to hold into 2025.
Near-term, we think the Kiwi will remain elevated, as the RBNZ’s hawk-like feathers fly higher and shine brighter than
their central banking peers. The stronger Kiwi flyer will assist with the inflation fight, and help importers.
Ultimately, we think the cooling in global demand and reduction in inflation pressures will weigh on the bird. But that
may take many-a-month to see. It will be a volatile downward glidepath. It always is. But we expect the Kiwi to
ultimately fall into a 55c-to-59c range in 2025. Basically, we expect to re-record the recent lows. The downward
glidepath for the Kiwi flyer will eventually help our exporters, with tourism and agriculture in need of a boost.