According to JP Morgan, the New Zealand Dollar will likely be impacted by the country's steep decline in house prices.

House prices are significant for currency markets, and what's happening in New Zealand leads the Wall Street bank to have a "bearish bias" on the NZ Dollar. 

"House prices have fallen in the Antipodeans, but the decline has been deeper for New Zealand, where they are down 16% from the peak," according to Meera Chandan, an economist and currency analyst at JP Morgan in London.

New Zealand strategists at JP Morgan have highlighted the steeper fall in the country's housing sector as being "symptomatic of weaker credit demand/activity, and household consumption is more sensitive to that in NZ than Australia." 

The Reserve Bank of New Zealand (RBNZ) hiked the overnight cash rate to 4.75% last month and stated that borrowing costs will need to increase further still in the coming months to revert inflation back to 2.0%, Pound Sterling Live reports. 

"The Committee agreed that monetary conditions need to tighten further, as indicated in the November Statement, so as to be confident there is sufficient restraint on spending to bring inflation back within its 1 to 3% per annum target range," said an RBNZ statement. 

JP Morgan added that borrowing costs are more significant for New Zealand's economic and currency outlook than perhaps other countries. The savings rate in NZ is lower than in Australia, so households depend more on credit growth. 

In the year to Q3, Australia's savings rate averaged 10%, compared to 3% in New Zealand. 

"So the implications for NZD are relatively larger through this channel," Chandan stated. 

"Like with Scandis, NZD appears to have decoupled from relative rate differentials as house prices started declining a year ago; we expect this to persist," the economist added.