Growing concerns regarding a potential global trade conflict and increasing risk-averse sentiment are causing worries among some investors about the prospect of the New Zealand dollar dropping to its lowest level seen during the Covid-19 pandemic by the end of this year.
Forecasts suggest that the kiwi could decline to 55 cents from its current rate around 56 cents by the conclusion of June. Analysts at Australia & New Zealand Banking Group Ltd. predict this downward trend, with Commonwealth Bank of Australia also anticipating the currency reaching that level sometime in the current year. Standard Chartered Plc expects the kiwi to fall below its lowest point in March 2020 of 54.70 cents by December.
The recent imposition of tariffs by President Donald Trump is expected to impact risk-sensitive assets globally, including the New Zealand dollar. Concerns are rising that a trade dispute could hamper worldwide economic growth, prompting a shift towards safer assets. Following the US's imposition of cumulative 54% tariffs on China—New Zealand's primary export destination—the kiwi may face additional challenges.
Carol Kong, a currency strategist at Commonwealth Bank of Australia, based in Sydney, expresses a pessimistic outlook on the New Zealand dollar due to the belief that markets have not factored in enough negative effects of the ongoing trade tensions on the global economy. She foresees the currency weakening towards 55 cents.
Despite the kiwi's 1.5% gain against the dollar in the first quarter, assisted by higher milk powder prices and a weaker US dollar, leveraged funds continue to hold a net short position on the currency, as per Commodity Futures Trading Commission data.
ANZ's head of foreign-exchange research in Sydney, Mahjabeen Zaman, points out that the New Zealand dollar is currently mainly influenced by risk appetite. Although dairy prices have been on an upward trajectory, the recent correlation between the kiwi and dairy prices has broken down. Zaman anticipates the kiwi to test 55 cents by June.
Market participants are eagerly awaiting the Reserve Bank of New Zealand's upcoming monetary policy decision on April 9, amid expectations of a fifth consecutive reduction in the benchmark interest rate. With swap markets largely pricing in a quarter-point cut by the central bank, the impact on the kiwi may be limited.
Zaman believes that the RBNZ meeting may not significantly influence the kiwi as the market has already factored in an interest rate of 3%.