Falling NZD makes Europe, US pricier while Asia draws travellers

New Zealanders planning overseas trips may face higher costs in some destinations as the New Zealand dollar continues to depreciate against major currencies, following the latest central bank rate cut. While those with mortgages could see lower repayments, international travellers are likely to experience a further squeeze on their holiday budgets, especially as the Christmas season nears.

Currency pressures

The New Zealand dollar's value has slipped significantly, particularly against the Euro, where it is down by over 12% in the past year. The US dollar has also seen relative gains, with the NZD falling about 2% over the past 12 months and nearly 20% over five years. These trends are prompting a shift in the destinations New Zealanders are likely to choose for international travel.

"While the rate cut is welcome news for those with mortgages, the picture is a little less clear for the strength of the New Zealand dollar and its impact on Kiwi travellers. As the New Zealand central bank has been cutting more quickly than most other countries, this is a major factor in the comparative weakness of our dollar when compared to other major currencies," said Tristan Dakin, Australia and New Zealand Country Manager, Wise.

Rising travel costs

Currency weakness translates into higher costs for flights, accommodation and local expenses in popular destinations such as Europe and the United States. As a result, some travellers may reconsider their plans or seek destinations where the NZD faces less downward pressure.

"To put this in context, over the past year, the NZD has now lost around 12% against the Euro, which impacts the cost of almost everything, spanning hotels, flights, and everyday attractions. And although the NZD has lost a more modest 2% against the USD over the same period, it's still down almost 20% if we zoom out over the past five years," said Dakin.

The currency's move after the latest rate decision was limited, as markets had already largely anticipated the bank's response. However, there is uncertainty regarding further cuts in 2025, contributing to ongoing concerns about the NZD's trajectory.

"As today's news was already priced in for the most part, the immediate impact has been modest, and the NZ dollar has strengthened slightly against the Euro and USD. But the central bank has left the door open for further cuts next year, which means the currency's relative weakness could continue and it's likely to take some time before it recovers," said Dakin.

Alternative destinations

Some travel destinations are now more attractive for New Zealand visitors thanks to favourable currency movements. Several Asian countries, including India, Vietnam, and Indonesia, have seen the NZD hold steady or appreciate slightly, making them stronger value options for holidaymakers.

"That said, there are some places that could offer more bang for your buck - at least in the short term. If you have your sights set on Goa or the Taj Mahal, you're in luck, with the New Zealand dollar seeing a slight gain on the Indian Rupee over the past year. Kiwis are also getting more from their dollars in Vietnam and Indonesia, increasing the appeal of these countries as budget friendly options," said Dakin.

The Japanese Yen has strengthened marginally against the NZD this year, but over five years, New Zealanders are still receiving comparatively high value. With destinations in Asia remaining affordable, traveller preferences appear to be shifting toward countries where the dollar goes further.

"And despite the Japanese Yen strengthening slightly against the New Zealand dollar this year (around 1%), Kiwis are still getting a good deal by historical standards, with the NZD being up over 20% when compared to the Yen over the past five years," said Dakin.

Changing travel patterns

Recent data shows a surge in outbound travel among New Zealand residents, with preferences reflecting currency trends. According to the latest figures from Stats NZ, departures to Asian destinations are up sharply year-on-year: Japan has risen 44% for the month, Vietnam by 26% for the year, and Indonesia by 13%. Travel to traditional western long-haul markets has softened, with the US showing a slight decline.

"We're already seeing how this plays out in real behaviour. Stats NZ's latest numbers shows travellers gravitating toward destinations where their dollar holds its ground, and easing off the ones where it doesn't. Currency isn't the whole story, but it appears to be shaping their destination choices - with Japan, Indonesia and Vietnam seeing a significant uptick in tourism," said Dakin.

Stretching the dollar

Travellers heading to Europe or the US can mitigate some of the impact of currency weakness by being mindful of exchange rates and transaction fees.

"For anyone that has their sights set on a trip to Europe, there are ways you can make your New Zealand dollars stretch further. One easy win, no matter where you're travelling, is ensuring that you avoid hidden fees in exchange rate markups that often come when using your bank issued credit or debit cards, while also avoiding expensive currency exchange kiosks in airports." said Dakin.