While it’s bad news for those planning an overseas trip and importers, a lower kiwi can help the economy – particularly exporters whose offshore earnings convert to more New Zealand dollars when they are repatriated.
Inbound tourism also gets a boost.
The New Zealand dollar hit US55.94c this morning – its lowest point since last December – before gaining a few pips to just over US56c.
Against the aussie, the kiwi was at A80.85c, down from A83.90c in August and down by A7c since the end of 2025.
Brent crude prices remain elevated at around US$102 a barrel, and diesel prices are expected to stay high for several months, even if the conflict in the Gulf were to end tomorrow.
Concerns about the inflationary impact of higher oil prices and NZ currency weakness have been reflected in the overnight index swaps (OIS) market, which has priced in a 60% chance of a rate hike from the Reserve Bank come October 28.
In addition, market pricing is also entertaining the idea of two hikes by the end of this year, and a 4.0% OCR by the end of 2027.
The kiwi is not the only currency to pale in comparison with the strong US dollar.
There was a sharp pullback in the euro overnight. The British pound also softened, as did the Japanese yen.
The aussie dollar is also soft against the greenback.
“The market is trading the kiwi like it is a low yielder – which it is now in this global environment,” one foreign exchange dealer said.
“The current price reflects concerns that the economy is struggling in the face of a negative terms of trade shock, which is what the oil shock is,” he said.
“It’s going to be in struggle street for a bit longer yet, but we will have to see how it goes.”
The US dollar index, which measures the greenback against a basket of six major currencies, was last at 102.04 – a 17-month high.
New Zealand’s trade-weighted index (TWI) is at 64 – well short of the Reserve Bank’s September projection of 66.9.
ANZ strategist David Croy said the weakness of the TWI, relative to the Reserve Bank’s projections, would feed into the central bank’s rate call.
“Markets have just got this idea that because it’s a week before the [November 7] election, the Reserve Bank will be reluctant to hike.
“I don’t see the RBNZ as being political animals. I just think they will do what they need to do.
“When the currency is tanking, it’s not so much about a hike shoring up the kiwi at these levels – it’s more about if they don’t, then the TWI could go another point lower,” he said.
Kiwibank chief economist Jarrod Kerr said the kiwi was reflecting a weaker local economy and developments overseas.
“The currency is doing exactly what it should be doing,” he said.
“You want the currency to weaken when your economy is soft because it makes you more attractive for foreign investment,” he said.
It also helped key exporters like Fonterra, and Kerr added inbound tourism looked to be getting a boost from cheaper kiwi dollars.
“The flip side is that it’s more expensive for us to buy stuff from overseas, so it adds a bit of inflation to the outlook,” Kerr said.
“That’s unhelpful as it’s coming at a time when Kiwis are being hit with higher petrol and diesel prices, and that might feed through to other imported products as well.”
Kerr said the Reserve Bank should “look through” the inflationary impact of high fuel prices and a weak currency in its decision-making come October 28.
“One is making the other a little bit worse, but I think we should be looking through it because there’s a lot of demand disruption out there.”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
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