A One-Two punch sends the NZD near 4 year lows

This morning, the New Zealand Dollar (NZD) experienced a significant decline, influenced by two key factors. Firstly, US Federal Reserve Governor Powell indicated a potential reduction in rate cuts for 2025, suggesting that inflation is likely to persist into the New Year. Secondly, New Zealand’s GDP contracted by 1% in the September quarter, falling short of expectations, accompanied by a substantial downward revision to the prior quarter’s figures.

The most notable disappointments were observed in the government and healthcare sectors. While personnel spending serves as a crucial indicator of activity in these areas, Stats NZ has highlighted that redundancy payments have inflated these figures recently and has made the necessary adjustments. The recent decline in activity reinforces the Reserve Bank of New Zealand’s (RBNZ) decision to commence interest rate cuts earlier this year. Our preliminary evaluation suggests that we may be witnessing the most challenging phase for GDP.

Currently, the NZD is trading close to its lowest level in the past four years.