USD under pressure
The USD has been under considerable pressure for most of this year, peaking before the middle of January and falling between 7-9% depending on which index is used. Of the global majors, SEK, CHF and JPY have gained around 10% or more, EUR, GBP and NOK have gained 6-9% and the commodity currencies AUD, CAD and NZD have gained 2-6%.
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Tariff Turmoil
Since President Trump was elected in November, our central FX projections have been predicated on a moderate Trump II scenario playing out. This assumed a phasing in of higher tariffs but not to the full extent threatened pre-election. We had assumed increased tariffs on China but well short of the mooted 60%, and mostly 10% tariffs on imports from other countries (likely with various carve outs), which culminated in about a 10% increase in the average tariff rate applied to all US imports (from the prevailing average of 2.4%).
NZD/EUR: Cross slumps after EU wakes up
NZD/EUR has been in a downward trend since 2017 based on its 200-day moving average. On 11-March, the cross rate reached a five-year low of 0.5215 on an intraday basis. If we exclude the volatile period at the height of the COVID19 shock, the level reached was the lowest since 2011.
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NZD Corporate FX Update
Trump’s tariff policy overhangs the FX market over the next month or so, but we assess downside risk for the NZD to be fading.
President Trump’s policy agenda has been a key influence on currency markets, most notably for European currencies (see next page). The NZD and AUD have been range trading this year, after their big hit in Q4. Of note, there has been no further downside despite US tariffs on China increasing by 20%, with China’s government keen to encourage yuan stability and policy support to achieve 5% growth in 2025.
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NZD/AUD: Downside risks fading with time
• While NZD/AUD is trading below average and our short-term models suggest 0.85 is a fairer level, we see less downside risk to the cross rate compared to our view last year. If clear macro forces in favour of Australia relative to NZ haven’t triggered a much weaker cross rate, it is becoming increasingly difficult to see a trigger for a final lurch down.
• Our projections for the cross rate have remained around 0.89-0.90 over the past year and the risk assessment was clearly to the downside. Looking forward, we see those risks fading. Macro forces are beginning to move in favour of NZ relative to Australia.
• Rather than disregard the message of the models, we’re inclined to interpret them as a reason to believe there is a high hurdle for the cross rate to recover strongly.
• We think it is probably going to be difficult to crack above 0.93 this year and we see that as a potential resistance level. Meanwhile 0.89 is looking more like a support level than a central forecast as we progress through the year.
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NZD Corporate FX Update
President Trump’s tariff policy overhangs the NZD outlook in the first half of the year.
Early in President Trump’s second term we have seen him stretch legal boundaries to exude considerable executive power, threaten/impose/delay tariffs, and offer frequent daily soundbites to reporters, driving intraday volatility in FX markets.
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