New Zealand Dollar Recovers

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It's a blue screen for global stock markets, which offers relief to NZD.

It's been a torrid run for the New Zealand Dollar, but gains by global equities offer some short-term respite.

The Kiwi is a 'high beta' currency, meaning it is particularly prone to the whims of global investor sentiment, which has deteriorated markedly over recent weeks.

However, an 'up day' for equities on Friday offers some relief for New Zealand's currency heading into the weekend:

Above: A wall of blue for equities. Source: IG.

"A rebound appears to be underway as US futures are climbing today and European indices are up too. China is leading the bounce where stocks have been lifted by renewed efforts by authorities to boost domestic consumption. More details will likely be announced on Monday when senior officials will hold a press conference," says Raffi Boyadjian, Lead Market Analyst at Trading Point.

Recent NZD weakness has largely been concentrated in the non-USD G10 crosses, particularly the European ones.

A look at the below chart shows NZD reached a new multi-year low against the Pound Sterling this week amidst a deepening NZD/GBP downtrend.

The chart also shows the S&P 500 index, a proxy for global investor sentiment, which has been falling of late.

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It tells us that as the S&P 500 falls, so too does NZD vs. GBP.

We have also included the Relative Strength Index (RSI) in the middle panel. The RSI reached below 30 this week, signalling oversold conditions and requiring consolidation or a recovery to mean revery back above 30.

As NZD rises, so those oversold conditions unwind.

What does the New Zealand Dollar outlook hold? As noted in the above, future travel could all rest with how far the equity market selloff extends.

Markets have fallen amidst intense policy uncertainty under new U.S. President Donald Trump, whose tariffs and job cuts are injecting a dose of caution into U.S. businesses and consumers.

"Tariff fears are starting to weigh on U.S. confidence more than in other regions, leading to a shift in relative risk premia," says Peter Oppenheimer, an equity analyst at Goldman Sachs. "High stock and sector concentration in the US is starting to act as a drag on index performance."

Geopolitical concerns have risen due to the 'America First' paradigm, which is far more aggressive under Trump's second presidency.

Trough and Then Recovery

The net result is global uncertainty, which is bad for small, open economies like New Zealand. The NZD's decline is a natural expression of this.

Strategists at Goldman Sachs say the market is in a trough but that a recovery awaits later in the year.

This implies potential for lower NZD levels in the near term ahead of a sustained recovery.

The Wall Street investment bank lowers its 2025 year-end S&P 500 index target to 6200 from 6500, which is above current levels at 5562.

"Our new index target suggests an 11% price gain during the balance of the year," says David J. Kostin, an analyst at Goldman Sachs.

"Outside of a recession, history shows that S&P 500 drawdowns are usually good buying opportunities if the economy and earnings continue to grow, which is our base case scenario," he adds.