NZD Corporate FX Update
We see NZD risks weighed to the downside through the first half of 2025. FX volatility and uncertainty are likely higher under the new US government.
In early November, post the US election, we made a significant downward revision to our NZD/USD projections. While the change in US economic policy direction with Trump as President was a key motivation for the revision, the stronger for longer US economy supported the change in outlook.
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Factoring Trump 2.0 into our NZD projections
Over recent months we have warned that our prevailing FX projections were based on a US political status quo and we would likely have to revise down our NZD/USD projections on a Trump victory. That time has come.
Our new baseline assumption is that a moderate Trump 2.0 scenario evolves. For the NZD, the most significant impact will be the increase in tariffs and spillover effects on China and global growth.
We now project further NZD downside from here but restrained by the fact that a Trump victory was already partially priced. Furthermore, compared to the period when the tariff war with China began under Trump 1.0, the starting point is a more richly priced USD.
Our new NZD projections imply that the currency could trade down to as low as 0.55 next year. But on a more aggressive US policy stance, downside potential is even greater. Without knowing policy details, there is wide uncertainty around our projections and we suspect that we’ll be doing more frequent revisions.
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Brace for impact
The US election is less than two weeks away and has been on our radar for some time. We have previously noted, on many occasions, that our FX projections – which embody a broadly weaker USD through next year enabling the NZD to show a steady recovery – assume some sort of US political status quo. If Trump won, we would be forced into reassessing that view. Our prior is that we might be forced into revising our USD projections higher, which would mean a revised lower NZD trajectory.
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NZD Corporate FX Update
Our (unchanged) projections are consistent with a 0.60-0.64 trading range over Q4. The November US election remains a key risk event that could get in the way of our 2025 projections for further NZD appreciation.
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Should we be upgrading the NZD outlook?
The NZD has appreciated to a fresh high for the year above 0.6350. In recent weekly updates we have noted the NZD tracking slightly ahead of our projections. Our projections haven’t been updated since April – an unusually long period between revisions, given the nature of currency forecasting. We have been projecting a year-end target of 0.62, consistent with a 0.60-0.64 trading range in Q4, and an end-2025 target of 0.67, consistent with the trading range gradually climbing to 0.65-0.69 about a year from now. Current spot is already near the top end of our suggested trading range for next quarter, although still short of where we see it heading next year. The question is should we be upgrading?
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