New Zealand (Commonwealth)_It is to share some interesting insights about the New Zealand Dollar and the current economic situation in New Zealand. According to an analysis from Capital Economics, it seems that the New Zealand Dollar might face some challenges ahead. The Reserve Bank of New Zealand (RBNZ) is expected to lead the next interest rate-cutting cycle, which could happen relatively soon. Additionally, Kiwibank, a domestic bank, has warned about the possibility of a double-dip recession in the country.
Jarrod Kerr, Chief Economist at Kiwibank, mentioned that they anticipate a continued slowdown in economic activity. He believes that the RBNZ’s efforts to constrain demand should not be underestimated, as they are determined to address the situation. This cautious approach from the RBNZ has led investors to anticipate the end of the rate-hiking cycle, resulting in the New Zealand Dollar underperforming in the global foreign exchange market. In fact, it experienced a technical recession in the fourth quarter of 2022 and the first quarter of 2023.
Kiwibank’s economic forecasts suggest that there might be three consecutive quarterly declines in economic activity from now on. While they slightly raised their forecasts due to increased net migration levels, which could boost demand and domestic output, it won’t be enough to counter the impact of the RBNZ’s rate hikes. As a result, discretionary incomes might be squeezed further, leading to a decrease in spending appetite.
Kiwibank predicts a 0.4% contraction in economic activity over three quarters, starting in the second half of the year. However, there is a potential upside risk if tourism experiences a stronger rebound than expected, as it has fallen short of initial projections so far.
Looking ahead, Kiwibank believes that the RBNZ will start easing interest rates early next year, given the way the economy is developing. In contrast, Capital Economics expects the RBNZ to begin cutting rates even before the end of this year. They anticipate a slowing global economy and a declining housing market to push the RBNZ into easing its policy.
Considering the current market dynamics, where currencies with higher and longer-lasting interest rates are favored, Capital Economics suggests that the outlook for the New Zealand Dollar is not very optimistic. Kiwibank also shares this view and expects weakness in the currency as the RBNZ responds to the sluggish economy by cutting interest rates.
To sum it up, the New Zealand Dollar might face some challenges due to the RBNZ’s expected rate cuts and the sluggish economic conditions. It’s important to keep an eye on the evolving situation, including factors like global economic trends, the housing market, and New Zealand’s current account deficit.
