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"If economic recoveries are cars – New Zealand is more Toyota Prius than Ferrari 458"
The New Zealand dollar is expected to remain subdued in the near term as global trade tensions and a sluggish domestic recovery weigh on sentiment, ASB says in a new quarterly forecast update.
Although the Auckland headquartered lender says it expects NZD/USD to fall further, it will see a meaningful recovery by mid-2026.
The Kiwi currency has already softened slightly against the U.S. dollar and yen since Donald Trump's return to the White House and further U.S. tariffs are expected to bolster the greenback.
However, losses against European currencies such as Pound Sterling and the Euro have been more severe, with GBP/NZD now trading at its highest levels since 2015. In fact, ASB's projections suggest these exchange rates might be overvalued.
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The subdued currency outlook comes amid what ASB describes as a "Prius-like" economic recovery — steady but restrained.
After contracting sharply in 2024, the New Zealand economy has begun to recover, led by exports of dairy, meat, and tourism services.
"If economic recoveries are cars – New Zealand is more Toyota Prius than Ferrari 458... the economy is on the mend," says Nick Tuffley, ASB's Chief Economist. "But the pace is moderate, and global developments could dampen the recent good fortunes of NZ’s export sectors."
Real GDP growth is projected to remain negative through mid-2025 on an annual basis, before picking up to 2.4% by early 2026. Consumer demand is expected to recover gradually as interest rates fall and household purchasing power improves.
However, risks remain. Slowing global growth, weak domestic productivity, and the potential for retaliatory tariffs could derail the export-led recovery. “NZ is a small and open economy that is highly reliant on frictionless trade,” ASB noted. “Anything that impedes this is unlikely to be good news.”
ASB expects the Reserve Bank of New Zealand to cut the Official Cash Rate twice more, to 3.25% by May, to support the recovery. Inflation is forecast to hover around 2.5%, while unemployment is expected to ease gradually from a peak of 5.2% in mid-2025.