Trade-weighted index

IBISWorld forecasts the trade-weighted index to fall by 2.1% in 2025-26, to 68.4 index points. New Zealand's dollar has weakened relative to the currencies of its major trading partners over the past decade. Fluctuations in the trade-weighted index are highly dependent on global forces and the actions of other central banks. A key driver behind the decline in the TWI has been the divergence between New Zealand's monetary policy and that of its trading partners. The Reserve Bank of New Zealand eased rates aggressively, cutting the Official Cash Rate (OCR) from 5.5% in July 2024 to 2.25% by November 2025, one of the fastest easing cycles among developed central banks. In contrast, the US Federal Reserve and Reserve Bank of Australia have maintained a more measured approach as inflation pressures persist. When domestic interest rates are substantially lower than those available in major trading partner currencies, investors have less incentive to hold New Zealand dollar assets, creating downwards pressure on the exchange rate. The labour market has also deteriorated, with unemployment rising to 5.3% in the September 2025 quarter, the highest level in nine years. An upwards trend in the value of New Zealand exports, particularly for dairy exports, will provide some support for the NZD.

In 2021-22, the RBNZ responded earlier than many other central banks to a global rise in inflation. This attracted investors to the New Zealand dollar, seeking to capitalise on interest rate differentials and temporarily inflated the trade-weighted index.

In 2022-23, concerns about global inflation heavily weakened the New Zealand dollar. As central banks around the world hiked interest rates, investors flocked to invest in US Dollars at the expense of riskier currencies, like the New Zealand dollar. This development contributed to a sharp drop in demand for the New Zealand dollar in 2022-23. These declines were moderated by the reopening of the Chinese economy, a key trade partner for New Zealand. Aggressive cuts to the cash rate during 2024-25 and 2025-26, rising unemployment figures and New Zealand's Real GDP declining during 2024-25 for the first time since 2008-2009 have contributed to the depreciation of the NZD and further declines in the TWI. Overall, IBISWorld forecasts the trade-weighted index to decline at a compound annual rate of 1.1% over the five years through 2025-26.