The New Zealand dollar is synonymous with stability

The New Zealand dollar is synonymous with stability

Let's see how the New Zealand currency and economy performed in 2022, and what we can expect from it in 2023.

The Reserve Bank of New Zealand (RBNZ) raised interest rates by 75 basis points at the end of November, to 4.25%. The country has never witnessed such a major transformation in the economy, and further increases cannot be ruled out. If the Reserve Bank of New Zealand has taken these drastic measures, having already raised interest rates by half a percentage point five times, it is because inflation is higher than expected.

The bank targets an annual inflation rate ranging from 1 to 3%. However, the last point indicates a rate of 7.2%, and short-term inflationary expectations have increased further. Households continue to spend and unemployment is very low. Despite the shortage of workers, the government refuses to increase immigration quotas. Interest rate increases have supported the New Zealand dollar (NZD), whose value now remains the same as it was at the start of 2022.

What can we expect from the New Zealand economy?

The Reserve Bank of New Zealand estimates that interest rates will peak at 5.5% by the third quarter of 2023. Naturally, this would be harmful to the economy, but as in many other countries, policymakers are more concerned about inflation than a potential recession.

On June 30, 2022, the European Union and New Zealand completed negotiations on a trade agreement that would eliminate all tariffs on exports from the European bloc to the island nation. This agreement will boost the New Zealand economy in the coming years.

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How will the New Zealand dollar perform in 2023?

For years now, the currency has moved around NZ$1.70 per €1; We don't expect any major fluctuations in 2023 either. The interest rate spread against five-year Belgian government bonds is now 2%, which is likely to support the New Zealand dollar over the coming years. As always, the currency has a little upside potential, but there are downside risks.

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