Synopsis:

MUFG sees downside risk for NZD/USD if Trump wins the upcoming US election, potentially driving the pair below 2023 lows (under 0.5800) with a 4-5% drop. While the RBNZ’s return to a neutral rate path is priced in by markets, a Trump victory may prompt faster policy adjustments, keeping NZD/USD lower than anticipated in a Harris-led scenario.

Key Points:

• RBNZ Rate Outlook: The OIS market expects the RBNZ to return to a neutral rate over the next year, but economic pressures may accelerate this timeline.
• Trump Victory Impact: A Trump win could drive NZD/USD below 0.5800, triggering a further 4-5% decline due to anticipated policy shifts and potential global risk aversion.
• 2025 NZD/USD Outlook: MUFG expects NZD/USD to recover in 2025, but at lower levels than previously forecasted for a Harris win.

Conclusion:

MUFG anticipates downside pressure on NZD/USD with a potential Trump election win, driven by accelerated policy adjustments and heightened market caution. Although NZD/USD may drift higher in 2025, levels are likely to remain subdued compared to a Harris victory scenario.