Recent wage growth data has shown signs of slowing in New Zealand, and forward-looking indicators suggest that the RBNZ could turn more dovish heading into its next meeting on 28 May. Combine this with weakening global growth due to prolonged trade friction and the elevated uncertainty premium in the U.S.—which tends to spill over globally—and NZD's high-beta nature becomes a liability. As volatility picks up, investors typically rotate out of currencies like NZD that are tied to risk appetite.

2. EUR: Defensive Qualities and Current Account Strength

In contrast, the euro is starting to look relatively resilient. Yes, the eurozone still faces structural headwinds, but EUR has regained appeal as a liquid alternative to USD—particularly in a de-risking environment. The region’s current account surplus and the exit from negative rates are contributing to inflows, and with eurozone bonds offering more attractive yields than in recent years, foreign appetite remains supportive.

The euro is also benefiting from improving political clarity within the EU and fiscal policy tailwinds, particularly from Germany’s aggressive spending pivot, which should help cushion against any trade-related global slowdown.

3. Macro Divergence Creates Spread Potential

This is a relative value story as much as a directional one. The RBNZ is increasingly leaning toward cutting again, while the ECB is taking a slower approach to easing. As monetary policy paths diverge, yield spreads are likely to compress in favor of the euro. At the same time, risk sentiment remains fragile—further supporting EUR’s position as a low-volatility, core currency within portfolios.

IMM data shows that leveraged funds are still holding modest NZD shorts, but there's no aggressive long EUR/NZD positioning priced in. This means that if momentum does build, there’s room for positioning to shift further in EUR's favor, particularly if the NZD weakens on soft data or if risk-off flows return more broadly.

LONG EURNZD

May 13 2025