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New Zealand Dollar “Lacks the Energy of other G10 Commodity Currencies says BMO Capital

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NZ Dollar

  • NZD/USD faces further downside
  • Should support GBP/NZD
  • As NZ struggles with surging fuel prices
  • And peaking RBNZ hike expectations

NZ Dollar

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The New Zealand Dollar is tipped to be a laggard in the commodity currency complex by foreign exchange analysts at BMO Capital Markets who say the global surge in fuel prices will continue to proved a drag on the country’s trade dynamics.

In a monthly foreign exchange forecast update analysts say the New Zealand Dollar would also struggle as the Reserve Bank of New Zealand (RBNZ) could be amongst the first major central banks to call an end to its interest rate hiking cycle.

New Zealand “had its moment as a nation when its economy seemed the most COVID resistant in the G10, which allowed the RBNZ to lead out in tightening monetary policy,” says Greg Anderson, Global Head of FX Strategy at BMO Capital Markets.

“Despite NZ having the G10’s highest overnight rate (with the RBNZ at 2.00%), NZD hasn’t fared well during the global tightening phase,” says Gallo. (Set your FX rate alert here).

The RBNZ has raised the Official Cash Rate to 2.0% in the face of inflation that has reached 6.9%.

This has provided the New Zealand Dollar with some support via the interest rates channel, however the market is currently anticipating a further 230 basis point of rate hikes to be delivered by the end of the year.

The failure of these expectations to provide further NZD support suggests the RBNZ policy is no longer supportive and could in fact turn outright bearish.

“Now we’re getting close to where markets will start to speculate about which central banks will stop tightening first,” says Gallo. “The RBNZ is probably the lead candidate.”



The New Zealand Dollar surged in value during the February-March period as Russia’s invasion of Ukraine pushed global commodity prices sharply higher, including agricultural commodities of which New Zealand specialises.

Bloomberg’s agricultural commodity price index is up 28% in 2022 and 35% YoY.

This index has traditionally been highly correlated with the New Zealand Dollar explains Gallo.

“However, over the past year, that correlation has fallen apart,” he adds. “We think the reason is that higher commodity prices have yet to help NZ’s external balance (unlike in Australia and Canada).”


NZ current account

Above: NZ Monthly and Rolling 12M Trade Balance.


“With very little travel exports and the surging price of energy imports, NZ’s trade deficit has ballooned,” says Gallo.

BMO Capital Markets think New Zealand’s external balance should improve over the next 6M.

“However, with its foreign energy dependence, with think NZD will lag other commodity currencies,” says Gallo.


NZD forecasts

Above: BMO’s NZD/USD outlook.


BMO Capital forecasts the New Zealand Dollar / U.S. dollar exchange rate to trade at 0.61 over a one month horizon, 0.61 over a three month horizon, 0.62 over a six month horizon and 0.65 over a one year horizon.

Given spot is currently at 0.6315 this implies further underperformance over the near- to medium-term which has implications for other NZD crosses.

Such a profile could keep the Pound propped up against the NZ currency and implies the potential for some further, albeit modest, upside.


GBP to NZD daily

Above: GBP/NZD at daily intervals.


The Pound to New Zealand Dollar exchange rate reached a low of 1.8713 on April 05 following a sharp drop that came in the wake of Russia’s invasion of Ukraine.

Surging commodity prices lifted the New Zealand Dollar and sunk European currencies such as the Pound.

But commodity prices have stabilised and have since started coming down, offering the Pound the chance to recover.

If BMO Capital is correct in their predictions further upside in GBP/NZD is possible, all else being equal.

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