New Zealand Dollar to "Languish": Westpac

Image © Westpac

"The NZD is likely to languish for a while yet," says Westpac, the Australia and New Zealand banking giant.

The call forms part of the bank's latest monthly assessment of the New Zealand economy that takes into account the evolving impact of the Middle East conflict, which is expected to delay the economy's recovery from a period of stagnation.

"Soft economic growth and lingering excess capacity compared to similar economies will also weigh on the NZD for some time yet," says the assessment.

To be sure, analysts acknowledge that NZD has proven relatively robust in 2026 as it has firmed modestly since the start of this year, both against the USD and on a trade-weighted (TWI) basis.

This comes at a time when the US dollar has been relatively stable.

However, the NZD/AUD, which is crucial for New Zealand's importers and exporters, has declined to a 15-year low, likely influenced by the growing divergence in interest rates between New Zealand and Australia, "given the differing cyclical positions of these economies."

The Iran war is more of a negative mark against NZD than AUD as the conflict presents a negative terms of trade shock. Where Australia is a net exporter of energy (thanks to bountiful natural gas reserves), New Zealand is a net importer.

The terms of trade "will likely keep the NZD in check until uncertainty about the war reduces," says Westpac.

Near-term, Westpac thinks the NZD will continue to be the key shock absorber, helping cushion the New Zealand economy from the Iran war shock.

Over the medium term, "a further weakening of the USD – which remains overvalued in our view – should lend support to the NZD."

Westpac's updated NZD forecasts are as follows:

Pound-to-New Zealand dollar: 2.27 by mid-year and 2.33 by year-end. Euro-to-New Zealand dollar: 2.0 by both mid-year and year-end. New Zealand-to-U.S. dollar forecast: 0.59 and 0.59 for the respective future points.