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How population growth affects FX

ADMIN || 10th October 2025

The last 2-3 months have been tough for CAD & NZD – the worst performers in G10 outside of the politics-affected yen. Part of that reflects falling rate spreads on the back of soft data and central banks out-doving the market (including the RBNZ overnight) with their latest decisions.

Grinding to a halt. One driver at work appears to be a large drop in population growth. After running at a pace more than double that of G10 peers, there’s been complete convergence lately (chart below). Both countries added over 16% to their populations over the decade to 2024, but that’s almost ground to a halt in 2025. That reflects in part some policy changes in both countries in response to political concerns around the impact on infrastructure, housing and the labor market.

GDP & policy rates down. Population growth delivers a mechanical boost to GDP growth, which in turn tends to lift neutral rates and result in higher policy rates (chart below).

The adjustment in policy rates has been large – the RBNZ policy rate hasn’t been this low in relative terms in 25 years (chart below). And for Canada it’s not far from 15-year lows (notwithstanding some pick-up lately).

Need to sell some debt. The loss of excess carry could be an especially large challenge for both countries, since they run current account deficits, and have been reliant on robust debt inflows (the highest in G10) to finance part of that (chart below). Offshore investors may head elsewhere in search of returns. These trends could keep sustained pressure on CAD and NZD.

What is happening elsewhere: Australia and US stand out for having high population growth in recent years. But there’s little sign of slowing yet in Australia – it was still running at 1.7%yoy in Q2, right on the decade-average. We’ll be watching to see if it follows the trend of other countries. For the US, any growth headwind from lower immigration seems to be offset by the impact of tech spend on growth.

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