New Zealand Dollar to Star in 2024

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The New Zealand Dollar will be one of 2024's star performers, according to strategists at a leading Scandinavian bank.

In a new foreign exchange research and strategy note, Handelsbanken says buying the New Zealand Dollar forms a "Trade of the Year", arguing that falling global interest rates will boost the currency.

The world's major central banks are expected to cut interest rates in 2024 as inflation falls back to target, but Handelsbanken says the Reserve Bank of New Zealand (RBNZ) will be relatively late to the party.

"Inflation in New Zealand has been stubbornly high, but the central bank has responded to this with an austere monetary policy. It is entirely probable that New Zealand’s policy rate will stay at a slightly higher level than other central banks," says Tommy von Brömsen, an analyst at Handelsbanken.

Any delay to the RBNZ's rate cuts will contribute "to good carry" (interest rate differential), says von Bromsen, offering NZD support.

"At the same time, the currency will strengthen as interest rates fall around the globe and overall uncertainty decreases," he adds.

The New Zealand Dollar was one of the better-performing G10 currencies into the end of 2023 as market bets for central bank interest rate cuts rose.

Falling interest rates are expected to boost global growth, which aids equities and commodities, in turn supporting currencies that tend to rise when these assets are appreciating.

The New Zealand Dollar is one such 'high beta' currency. "Business cycle sensitive currencies... will strengthen," says von Brömsen.

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Handelsbanken warns that one risk to the constructive NZD view is its exposure to China, where economic activity could continue to slow.

"However, we believe that the Chinese authorities will do all they can to hit their growth targets by means of various types of stimulus," says von Brömsen.

The NZD joins the NOK and SEK in a basket of currencies that are tipped as buys by Handelsbanken, while the 'safe-haven' currencies such as USD and CHF will weaken.

"Most signs suggest that the dollar will depreciate as global interest rates come down during the year. Just as it depreciated towards the end of 2023," says von Brömsen.