Currency moves could mean a billion dollars in household savings

Friday, 24 July 2026

A small move in exchange rates can mean small discounts or premiums to the individual consumer, but adding that up across all Kiwi households, that could translates to over a billion NZ dollars of savings a year.

Alexandra Turcu is a Kiwibank economist.

OPINION: Kiwi households need to know how exchange rates affect them day-to-day. It’s easy to think that the Kiwi dollar’s value is only relevant if you’re travelling overseas. But exchange rates affect the way Kiwi spend, how rich they feel, and how far their dollars can stretch.

How much foreign currency one Kiwi dollar can buy - the exchange rate - fluctuates based on how attractive Kiwi investments are. When Kiwi investments look good compared to overseas alternatives, the Kiwi dollar tends to strengthen. A strong Kiwi dollar can buy more foreign currency. It works the same way in reverse. So how does this impact households?

Kiwi households spend $3.12 billion New Zealand dollars per year on imported goods valued under $1,000, purchased directly from overseas. When accounting for all imports, including high-value personal assets, overseas travel services, and imported goods bought through domestic retail channels, Kiwi households consume roughly $30 - $40 billion worth of imported goods and services annually.

When our currency gains value, travelling becomes cheaper, as does buying things from overseas (importing). If you’re anything like me, and you pay an overseas company a subscription fee every month… that fee stays the same, but you pay less when the Kiwi dollar is stronger.

Say your household spends $25 US dollars a month on a subscription service. When the exchange rate is $0.55 (every NZ dollar $1.00, buys $0.55 US dollars), you’d have to convert up to $45.45 NZ dollars into US dollars to pay that bill. Now, say our currency goes up in value, and the new exchange rate is $0.57. You’d now only have to convert up to $43.86 NZ dollars to pay the same $25 US dollar bill. That small move in exchange rates translates to a 3.5% discount, a total of $1.59 in savings! Not exactly a windfall… but when you add that up across all Kiwi households, that translates to $1 - $1.4 billion NZ dollars of savings a year.

Are our overseas bills getting cheaper or more expensive?

The answer here is murky. For now, we have two opposing forces working on the Kiwi dollar. We have domestic inflation and interest rates rising. When our Reserve Bank hikes interest rates in response to rising inflation, it makes buying Kiwi investments (such as government bonds and bank deposits) more attractive. To buy in, investors need to buy Kiwi dollars, making demand for our currency go up. Thus, the Kiwi dollar goes up in value.

But our interest rates are relative to those of other reserve banks and other investments more generally. So, if our Reserve Bank hikes interest rates at the same time as the US Federal Reserve does too, our dollar actually loses value. The Kiwi dollar tends to strengthen or weaken depending on how domestic interest rates compare with US interest rates.

Closer to home, we also need to consider our Aussie neighbours. The Reserve Bank of Australia has just finished a fresh batch of interest rate hikes to try to get inflation under control. Now confidence has dropped, and so has the strength of their currency, as their Reserve Bank goes on hold. Compared to our Reserve Bank that’s just starting to hike, our currency is looking a little more attractive. But international investors often view Australia and New Zealand as related investment destinations. Talk about sibling rivalry. For now, it looks like the Kiwi dollar will strengthen against the Australian dollar, which is good news for anyone planning an Aussie holiday.

The downward force on our dollar comes from the current oil and geopolitical crisis. As a net importer of fuel, New Zealand buys more refined fuel from overseas than we sell. When conflict in the Middle East pushes oil prices higher, New Zealand's import bill rises. More NZ dollars need to be exchanged for foreign currency to pay for fuel imports. Inflation tends to increase because fuel affects transport, freight and production costs. Household and business spending power is squeezed, and economic growth can weaken. All else being equal, these forces tend to be negative for the NZ dollar.

The Middle East conflict is also strengthening the US dollar. This channel is often more important than the oil price itself. When geopolitical tensions rise, investors become more risk-averse. Money flows into perceived “safe-haven” assets, particularly US Treasuries and the US dollar. Risk-sensitive currencies such as the NZ dollar tend to weaken. In market jargon, the NZD is often considered a 'risk currency', while the USD is considered a 'safe-haven currency'.

The Kiwi dollar could drift a little lower in the short term because investors are still favouring the US dollar. However, recent interest rate rises by the Reserve Bank of New Zealand should help support the Kiwi dollar, so a dramatic fall looks less likely unless global conditions worsen, a promising outlook for Kiwi across the motu.