European fund managers have been buying the New Zealand dollar, betting it will benefit from an economic recovery, the prospect of interest rate hikes, and a broad-based weakening of the US dollar.

London-based asset managers such as Candriam, Ninety One Plc, and Amova Asset Management have recently added the New Zealand dollar to their portfolios. The New Zealand dollar rose nearly 5% in January, becoming the second-best performing G10 currency so far this year.

While the New Zealand dollar has benefited from the general decline of the US dollar, several other factors have also contributed to a modest rise in 2025 after four consecutive years of decline. Strong business confidence and manufacturing growth suggest the New Zealand economy is benefiting from low borrowing costs; while rising inflation means interest rates are likely to rise by the end of the year.

“Foreign exchange trading is an excellent way to capitalize on the New Zealand economic rebound,” said Jamie Niven, senior portfolio manager at Candriam, who has been buying New Zealand dollars this month. “There are plenty of buying opportunities because the New Zealand dollar has been consistently undervalued.”

Last week, this sentiment propelled the New Zealand dollar to around 0.61 against the US dollar, its highest level since July. As a smaller, less liquid currency, the New Zealand dollar tends to strengthen when risk appetite is high, but it is also vulnerable to sudden shifts in market sentiment when investors seek safe-haven currencies like the Japanese yen and Swiss franc.

Nevertheless, interest in the New Zealand dollar continues to grow. Goldman Sachs strategists wrote in a recent report that they are bullish on the New Zealand dollar against the US dollar and that it has room to catch up with other top-performing currencies.

Alex Holroyd-Jones, portfolio manager at Ninety One, said the New Zealand dollar is due for a rebound after a period of “extreme unpopularity.” He has been buying New Zealand dollars against the euro since mid-January, betting that New Zealand’s economic recovery is undervalued.

“Many people are quite pessimistic about New Zealand’s economic outlook,” said Holloyd-Jones. “But when we look at the New Zealand economy, we see that the country has implemented fairly loose policies, among the most loose globally, and the economy is beginning to respond to them.”

With inflation accelerating, investors expect the Reserve Bank of New Zealand to raise interest rates this year, even as central banks in the US and UK continue to cut rates. JPMorgan Chase predicts that tightening will begin in September, a prediction reflected in swap pricing.

For Amova Asset Management, the prospect of interest rate hikes is reminiscent of the New Zealand dollar’s ​​rise in the early 2000s. At that time, investors flocked to this high-yielding currency to profit from arbitrage trades—borrowing low-yielding currencies and then buying higher-yielding ones.

“The New Zealand dollar has been the strongest performer against the US dollar. It seems we’re back to that market environment,” said Steven Williams, head of fixed income for Europe, the Middle East, and Africa at Amova. He has been buying New Zealand dollars in recent weeks and hopes to continue increasing his holdings.