The New Zealand dollar (NZD) is showing moderate weakness and is expected to face bearish pressure in the next seven weeks. This is mainly because the Reserve Bank of New Zealand (RBNZ) is likely to cut its main interest rate to 3.25% on May 28, 2025. The bank is easing rates due to a softening local economy. For example, the services sector recently shrank, and unemployment was 5.1% early this year.
Despite cautious government spending plans in Budget 2025 and strong trade numbers—especially a 38% rise in dairy exports in April—the overall economic outlook remains uncertain.
Business confidence fell sharply in April, largely due to concerns about US tariffs. These factors, combined with central bank easing and global risks, put pressure on the Kiwi dollar. Big investors are increasingly betting the NZD will weaken.
Government and Fiscal Policy
Markets will watch how the government implements its spending cuts and what effect this has on growth and debt. The “Growth Budget” aims to raise productivity and control public spending. Comments from the Prime Minister and Finance Minister on the budget’s impact will be important.
Trade challenges remain, especially with US tariffs affecting ties with China. Expanding trade partners will stay a priority. The reduced operating allowance of NZD 1.3 billion and spending on projects like NZD 604.6 million for rail upgrades will also be closely monitored.
Central Bank and Monetary Policy
The RBNZ’s May 28 rate decision is key. Markets expect a 0.25% cut, lowering the Official Cash Rate to 3.25%. The press conference with Acting Governor Christian Hawkesby will provide clues on future moves. Some investors think rates could fall further to around 2.85% or 3.0% later this year.
The RBNZ’s recent Financial Stability Report noted risks from global markets and US tariffs but said financial institutions are stable. Inflation is expected to rise slightly to about 2.29% over two years. Upcoming reports and speeches will be watched for changes in the RBNZ’s economic outlook, especially under new leadership since Governor Adrian Orr’s departure.
Economic Outlook
New Zealand’s economy is balancing strong exports with domestic weaknesses amid global uncertainty. Dairy exports jumped 38% in April, helping create a $1.43 billion trade surplus. But the domestic economy is sluggish. The services sector shrank in April, and rising costs may keep inflation a concern. Q1 GDP data due mid-June is expected to show modest growth but slower than last year.
Consumers are cautious; card spending dipped in April, while food prices rose 3.7%, the highest in 15 months. The job market is steady but should be watched closely.
Financial Markets
Markets are focused on the RBNZ’s May 28 announcement and global risk sentiment. The NZX 50 stock index, near 12,700 points, could dip to about 12,500. Rate signals from the RBNZ will influence stocks and government bonds. The expected 0.25% rate cut is priced in, but surprises could cause volatility.
Dairy prices remain important for market confidence. The NZD, trading near 0.59 US dollars, is sensitive to RBNZ guidance and global factors. US financial jitters after a credit downgrade could weaken the Kiwi, but a weaker US dollar might help. US-China trade relations also affect the NZD due to China’s role as New Zealand’s largest trading partner.
Market Risks
Market risks depend on how Budget 2025’s spending cuts affect growth and debt, alongside global concerns, especially US financial stability. These factors influence capital flows and investor sentiment. Recent data show big investors betting against the Kiwi, reflecting caution.
