A forex traders guide to the financial markets of New Zealand

The NZD is Moderately Weak and is expected to see a Moderately Bearish Influence during the upcoming seven weeks.

The Reserve Bank is likely to cut its main interest rate to 3.25% on May 28th. This is a big reason the Kiwi dollar isn't looking all that strong, fundamentally speaking. The Bank's making this move because the local economy is a bit soft – the services sector even shrank recently, and unemployment was at 5.1% in early 2025.

Even though Budget 2025 plans to be careful with spending, and recent trade numbers (especially dairy exports) have been good, there's still a cautious feeling about the economy overall. Business confidence also dropped quite a bit in April, mostly because of worries about US tariffs. So, with the local economy a bit weak, the central bank easing up, and some uncertainties out there, it looks like the Kiwi dollar might be under some pressure soon. In fact, recent figures (from May 13th) show that big investors are increasingly betting the New Zealand Dollar will fall.

Government and fiscal policy: Budgetary adjustments and trade navigation

Markets will be watching to see how the government is going to put the planned spending cuts into action, and what that means for economic growth and the government's debt. The government's "Growth Budget" ideas, like how to boost productivity and manage public spending, will also be under the microscope. Any comments from the Prime Minister or Finance Minister about how the budget is being received, or if they plan to adjust things due to economic shifts, will be important.

At the same time, the government's got to deal with tricky global trade, especially US tariffs and how they affect relationships with countries like China. Trying to trade with a wider range of countries will probably stay a key goal. The market will also start to see the real impact of the smaller operating allowance – which was cut down to NZD 1.3 billion – and where money is being spent, like the NZD 604.6 million for rail upgrades.

Central Bank and monetary policy: RBNZ easing and forward guidance in focus

Get ready for a big interest rate decision from the Reserve Bank (RBNZ) on May 28, 2025. Markets are expecting a cut to the Official Cash Rate (OCR) by 0.25%, bringing it down to 3.25%. The press conference afterwards with Acting Governor Christian Hawkesby will be key so tune in for hints about future moves. Investors are really wondering if this is near the end of the rate-cutting cycle, with some guessing the OCR might even hit 2.85% or 3.0% by late 2025.

When making their call, the RBNZ will be looking at their Financial Stability Report from May 7th. That report flagged more risks from shaky global markets and US tariffs, even though it said financial institutions are in good shape. They'll also be thinking about how business managers are expecting inflation to climb (to about 2.29% over two years, according to their survey). Any speeches or new reports coming out in June or early July will be watched closely for any shifts in how the RBNZ sees the economy, especially regarding inflation, our local economic softness, and global trade worries. This is also the first big call with the new leadership, since Governor Adrian Orr left on March 31st, so they're definitely under the spotlight.

The economy: Balancing export strength against domestic headwinds

Over the next seven weeks, New Zealand's economy looks like it'll be juggling strong exports against some weakness at home, all with a bit of global economic uncertainty in the background. The good news is that exports are booming – dairy, for example, jumped 38% in April giving a very healthy $1.43 billion trade surplus.

But on the domestic front, things are a bit sluggish. The services sector was still shrinking in April, and businesses are seeing costs go up (for what they buy and what they sell), which could keep inflation a concern. We'll get important updates with the Q1 GDP numbers around June 18th. Expectations are for a little bit of growth from the last quarter, but down compared to last year, so the economy's still a bit fragile. Shoppers seem to be cautious too – card spending dipped in April, and food prices climbed 3.7%, a 15-month high. The job market is holding steady for now, with unemployment at 5.1% in the first quarter, but keep an eye on that.

The Reserve Bank's statement on May 28th will be key for their overall view, especially after the Budget details. Plus, everyone will be watching house prices and if businesses and consumers start feeling more cost pressures.

The financial markets: Equities and Bonds eye RBNZ guidance and global cues

Over the next seven weeks, New Zealand's markets are really hanging on the Reserve Bank's (RBNZ) May 28th announcement and the general global risk mood. The NZX 50 stock index, recently around 12,700, might still see a dip to near 12,500 this quarter. What the RBNZ signals about future rates is crucial: ongoing cuts could boost stocks, but a tough stance could pull them down. It's much the same for government bonds, which will react to the RBNZ’s inflation and growth outlook; the expected 0.25% rate cut is a baseline, but any surprises or new rate plans could make yields jump, with US bond news also playing a part.

Dairy's still a big deal for NZ. Global auctions set key export prices, and Fonterra's payout forecasts are watched closely, especially after April's massive 38% dairy export jump showed how good prices can lift market confidence.

As for the Kiwi dollar (NZD), expect it to be quite sensitive. While the 0.25% RBNZ rate cut to 3.25% is largely priced in, the guidance afterwards will be what really moves the currency. The NZD, currently around 0.59 US dollars (helped by a weaker USD and good local trade news), still sees some big investors betting against it. Globally, US financial jitters after its credit downgrade could hurt the risk-sensitive NZD if investors get nervous. That said, if US worries weaken the US dollar overall, that could actually help the Kiwi. US-China trade relations also matter a lot, as the NZD often mirrors sentiment about China, our biggest trading partner, where recent rate cuts offered a temporary positive vibe.

Geopolitical, capital flows and market risk: Budget impact and lingering global uncertainties

Over the next seven weeks, New Zealand's market risk will really be shaped by how Budget 2025, announced May 22nd, actually pans out at home, alongside ongoing worries about the global economy, especially what's happening with US finances. Those planned spending cuts, meant to be careful with money, will be watched closely to see how they affect economic growth and our country's debt. People will want to see if these moves can balance helping the economy with being fiscally responsible, particularly with the tough global situation.

Money flowing into and out of the Kiwi dollar will likely react a lot to how risky things feel worldwide. After Moody's downgraded US government credit, everyone's paying close attention to the US financial situation, and this could make international markets a bit more jumpy. As a smaller, open economy, New Zealand's currency and assets can be swayed by these big shifts in what investors are feeling. In fact, recent figures (from May 13th) showed big investors are increasingly betting against the NZD, which suggests they're being cautious.

Since New Zealand relies so much on international trade, they are quite exposed to changes in global trade policies, especially with the US-China relationship. That brief good feeling after China cut its interest rates in May could easily disappear if new economic news from China isn't good or if trade tensions heat up again. The performance of key exports, particularly dairy, and swings in global dairy prices will keep being big factors for our trade balance and overall market risk. The Reserve Bank already pointed out in its May 7th report that shaky global markets and trade tensions are heightened risks, and that's definitely still on traders' minds.

Concluding thoughts

Right now, the New Zealand market is dealing with a mix of government policy changes and economic pressures from overseas. The biggest news is the government's Budget 2025, announced on May 22nd, which looks like it means tighter spending. This is happening just as the Reserve Bank (RBNZ) is expected to cut interest rates on May 28th. On top of that, there’s global nervousness about US money issues, especially after Moody's downgraded their credit. But some good news for New Zealand is our exports, particularly dairy, are doing really well – dairy exports jumped 38% in April compared to last year, giving us a nice trade surplus. So, there's a lot going on for the Kiwi dollar.

For forex traders, here’s what to watch in the coming weeks:

• Pay close attention to what the RBNZ says after their expected rate cut on May 28th – this will give clues about future interest rate moves.

• See how the new government budget actually affects economic growth and how investors feel.

• Keep an eye on the global risk mood, especially how people react to US financial stability and any changes in US-China trade, since the NZD often reacts to these things.

• Continue to follow global dairy prices from the GDT auctions, as they really matter for New Zealand's trade and the Kiwi dollar's value.

How these local policy shifts and the shaky international scene play out together will be key for finding NZD trading opportunities.