Currency Research
NZD Corporate FX Update
The upward trend in NZD/USD in the first half of the year – driven by broad-based USD selling pressure – has been arrested, with some retracement through July so far.
The near-term outlook for FX markets is clouded by uncertainty on where US policy lands on tariffs. The previous 9-July deadline for implementing higher tariffs was delayed until 1-August. Not forgetting that early April was the original date for much higher tariffs, it wouldn’t surprise if further delays ensued.
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Economy Watch
Business expectations hold firm
The ANZ Business Survey continues to portray a positive economic outlook. Forward-looking indicators for growth, investment and employment were little changed in July and remain firmly optimistic. This buoyancy is a far cry from current conditions and is yet to show up meaningfully in actual economic outcomes.
BNZ & SEEK Employment Report: No joy in June
The trend in job ads has resumed its downward slide, declining another 1.2% in June. Labour demand has weakened further. After a year of relative stability, ads are again on a downwards trajectory.
Inflation to test the top of RBNZ target band
Today’s June Selected Price Indexes support our view that Q2 CPI inflation will print above the RBNZ’s MPS forecasts and sets up a further nudge higher in Q3.
Ongoing Contraction
New Zealand’s services sector displayed contraction for a fifth consecutive month, according to the BNZ – BusinessNZ Performance of Services Index (PSI).
The PSI for June was 47.3 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). Although this was 3.2 points up from May, it was still well below the average of 52.9 over the history of the survey.
BusinessNZ's CEO, Katherine Rich said that while the June result saw most of the sub-index results display a higher value than the previous month, it continued the theme of ongoing contraction in a sector that has only seen one month of minimal expansion over a 16-month period. For the sub-index results, the key results for Activity/Sales (44.5) and New Orders/Business (48.8) were still unable to show any expansion. Stocks/Inventories (50.6) did show expansion for the first time since November 2024, although Employment (47.2) remained firmly in contraction, which has now been the case for 19 months.
The proportion of negative comments for June (66.2%) was up from May (65.6%) and April (61.8%). Service sector businesses face weak consumer confidence, high living costs and economic uncertainty. Reduced spending, inflation, rising interest rates, and public sector cutbacks are key pressures, with winter and fewer tourists further dampening demand.
BNZ's Senior Economist Doug Steel said that "while the headline PSI measure did lift from 44.1 to 47.3, every month it remains below 50 suggests service sector conditions are getting worse not better. The timeline for New Zealand’s long-awaited economic recovery just keeps getting pushed further and further out".
Still in the red
New Zealand’s manufacturing sector continued to show contraction during June, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).
The seasonally adjusted PMI for June was 48.8 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). While this was up from 47.4 in May, it was not enough to see the sector climb out of contraction. The survey was also well below the average of 52.5 since it began.
BusinessNZ’s Director, Advocacy Catherine Beard said that the positive start to the year is now being undone somewhat by manufacturers that are currently struggling to see expansion in most elements of their business.
“Four of the five main sub-index values were in decline. New Orders (51.2) improved the most from May to June to show some optimism for the months ahead, while Production (48.6) inched closer to the no-change mark of 50. However, Finished Stocks (46.9) dipped to its lowest value since December 2024 after five consecutive months of expansion, while Employment (47.9) remains in contraction after a sizeable drop in activity the month before."
The proportion of negative comments from respondents for June (65.5%) was almost identical to May (64.5%). Comments indicate that manufacturers report a major slowdown due to weak consumer demand, high living costs, and economic uncertainty. Falling construction activity, rising input costs, and global instability are reducing orders and cashflow, while supply chain issues add further pressure.
BNZ’s Senior Economist Doug Steel said that “looking across the PMI sub-indices, they all remain well below their historical averages. Despite talk of an economic recovery, conditions are still very tough".
Households under pressure
Stats NZ produces a quarterly update on the income, savings, assets and liabilities of the household sector. These releases are not followed that closely but we believe they contain a wealth of information. Granted the data are still a tad experimental in nature so should be treated with a modicum of caution especially with regard to levels. But we still think the direction of change provides great insight.
QSBO, and our RBNZ MPR Preview
We’ve been waiting for today’s QSBO to decide whether or not to maintain our view that the RBNZ will lower its cash rate at its July 9 meeting. To be completely honest all the QSBO has done is further muddy the waters. In the end, though, we have reached the conclusion that it will be hard for the RBNZ to cut at this meeting given that post the MPS it suggested market pricing would be a key driver of its decision. In some ways the RBNZ is in a comfortable spot. The market is not looking for a cut in July but still thinks another rate reduction is a done deal with the chance of more. The RBNZ thus will feel no need to rock the boat.
Job ads 50% below peak
New job ads dropped 2.1% m/m in May. The latest fall follows two consecutive monthly increases and is a timely reminder that the labour market is still soft. Taking a step back from month-to-month volatility, ads have been broadly flat for nearly a year now, following very large prior declines.
New Zealand at a Glance
In theory the New Zealand economy should be on a sustainable upward path. But a weak starting point coupled with massive geopolitical uncertainty and a modicum of domestic political concerns is adversely impacting investment and hiring activity. In this environment the labour market will remain relatively weak for some time. We still think the positives will eventually outweigh the negatives but believe another nudge lower in interest rates would be beneficial even if short-term inflationary pressures look problematic. Even with lower rates it appears that medium-term inflation will be contained.
Growth Confirmed, Eyes Ahead
At one level, whatever today’s GDP data reported for the first quarter of the year it was always going to come with a caveat that it predates a lot of material change.
Recent developments include the global trade upheaval that US President Trump’s ‘Liberation Day’ kicked off and the associated rapid elevation of uncertainty; escalating geopolitical tension; and a material softening in timely domestic economic indicators for Q2.
Current Account Rapidly Improving
The external accounts continue to improve, with the current account deficit narrowing to 5.7% of GDP in the year to March 2025. This is well below its peak of 9.2% in December 2022, largely due to high commodity prices, strong primary production and the recovery in international tourism. We expect the deficit to continue narrowing towards 4% over the next year.
Annual CPI inflation to clear 3.0%?
May month selected price indices are unequivocally hawkish. On balance the monthly data has turned out to be more inflationary than we had expected. This has caused us to revise upwards our Q2 CPI pick to 0.8%, from 0.6% previously. Importantly, this is well above the RBNZ’s 0.5% estimate for the quarter.
Service with a slump
New Zealand’s services sector continued to show further decline in activity during May, according to the BNZ – BusinessNZ Performance of Services Index (PSI).
The PSI for May was 44.0 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was down 4.1 points from April and well below the average of 53.0 over the history of the survey.
BusinessNZ's CEO, Katherine Rich said that after a return to small expansion in January, the sector has continually contracted month-on-month since then, reaching its lowest level of activity since June 2024. For the sub-index results, the key results for Activity/Sales (40.1) and New Orders/Business (43.2) were also the lowest since June 2024. Employment (47.2) fell back into further contraction, while Deliveries (45.7) remained unchanged from the previous month.
The proportion of negative comments for May (65.6%) was up from April (61.8%) and March (56.7%). Many businesses noted reduced demand and falling revenues due to rising costs, economic uncertainty and low consumer confidence. Comments noted customers spending less, delaying decisions, and responding cautiously to inflation, interest rates, and broader market instability.
BNZ's Senior Economist Doug Steel said that "the fall in the PSI follows the sharp decline in the Performance of Manufacturing Index (PMI) from 53.3 to 47.5. Together, they are consistent with the economy returning to recession. We’re a long way from forecasting this, but the data are a reminder of just how vulnerable the economy currently is".
Back in the red
New Zealand’s manufacturing sector fell back into contraction during May, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).
The seasonally adjusted PMI for May was 47.5 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down from 53.3 in April and a return to contraction after four consecutive months of expansion. The survey was also well below the average of 52.5 since it began.
BusinessNZ’s Director, Advocacy Catherine Beard said that the May result was disappointing to see given the sector had appeared to have turned a
corner at the start of 2025 following a tough 2023-2024 period of contraction.
“Four of the five main sub-index values were in decline, with New Orders (45.3) showing the strongest level of contraction for May. Following healthy expansion from February-April, Employment (45.7) decreased 8.9 points to be at its lowest level of activity since July 2024".
The return to contraction also saw the proportion of negative comments from respondents increase to 64.5%, compared with 58% in April and 57.5% in March. Comments indicate that manufacturers are reporting a clear return to decline, driven by falling demand, weak orders, and low business confidence. Rising costs, economic uncertainty, and reduced consumer spending are compounding pressures, while forward orders and investment remain stalled.
BNZ’s Senior Economist Doug Steel said that “the New Zealand economy can claw its way forward over the course of 2025, but the PMI is yet another indicator that suggests an increased risk that the bounce in GDP reported for Q4, 2024 and Q1, 2025 could come to a grinding halt”.
Retail outlook on a knife edge
When economic cycles turn they invariably develop a self-fulfilling momentum that generates shifts in activity much greater than inherently conservative forecasters might contemplate. Until Master Trump arrived on the scene, we were developing growing confidence that we were at the start of a sustainable economic recovery. Now we are less certain.
ANZ Survey Surprisingly Robust?
With high frequency data front of mind for the Reserve Bank, today’s ANZ business opinion survey was front of mind for us.
At first glance the figures rolling across the screens looked simply awful. Business confidence down, activity outlook down, exports down, investment intentions down, residential construction down, commercial construction pummelled, employment down, profits pummelled.
RBNZ: Delivers A Hawkish Cut
In its April Monetary Policy Review, the Reserve Bank Monetary Policy Committee said “As the extent and effect of tariff policies become clearer, the Committee has scope to lower the OCR further as appropriate. Future policy decisions will be determined by the outlook for inflationary pressure over the medium term”. The Bank didn’t repeat these words in its May policy assessment but it remains the centrepiece of its thinking.
Retail Recovery From Weak Base
Retail sales volumes increased 0.8% in the March 2025 quarter. This was well above both our forecasts and market expectations for 0.0%. Combined with +1.0% in the previous quarter, it suggests retail sales volumes are growing at an annualised pace of 3.6%.
Signs of Stabilisation
New jobs ads increased 1.1% m/m in April. This is the second consecutive month they’ve lifted, which last occurred back in August 2022. While it is still too early to assume we’re at the beginning of an upturn, there are clear signs labour demand is at least stabilising. Nonetheless, any improvement would be coming off a very weak base with job ads still 9.6% below year earlier levels, and 48% below their mid-2022 peak.
NZ Budget 2025
Key forecasts
The Government expects a balanced budget in the year ended June 2029.
Deficit is projected to rise to 2.6% of GDP in fiscal 2026 from 2.3% this year.
Net core crown debt progressively edges higher from a current 42.7% of GDP to a peak of 46.0% of GDP in the June year 2028.
The fiscal forecasts are based on Treasury’s expectation that following a 0.8% contraction in GDP in the June year 2025 growth will bounce to average 2.9% per annum over the next four years.
Declining fortunes
New Zealand’s services sector showed further decline in activity during April, according to the BNZ – BusinessNZ Performance of Services Index (PSI).
The PSI for April was 48.5 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was down 0.4 points from March and well below the average of 53.0 over the history of the survey.
BusinessNZ's CEO, Katherine Rich said the sector has fallen back into a pattern of mild contraction. For the sub-index results, Activity/Sales (47.3) remained the same as March, although New Orders/Business (50.9) continued to buck the trend with its highest value since February 2024. Employment (48.2) fell back into contraction, while Deliveries (45.8) recorded its lowest level of activity since September 2024.
The proportion of negative comments for April (61.8%) was up from March (56.7%) and February (57.8%). Businesses noted being negatively impacted by a combination of weak consumer demand, high cost of living and interest rates, economic and geopolitical uncertainty, seasonal slowdowns and low business confidence.
BNZ's Senior Economist Doug Steel said that "for all the commentary around the economic recovery, the PSI is a good reminder that current conditions are extremely challenging. New Zealand’s PSI remains weaker than all our key trading partners. At 48.5, it’s consistent with a service sector still moving backwards".
Uptick in expansion
New Zealand’s manufacturing sector showed an uptick in expansion during April, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).
The seasonally adjusted PMI for April was 53.9 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was up from 53.2 in March and the fourth month in a row showing expansion. The survey was also above the average of 52.5 since it began.
BusinessNZ’s Director, Advocacy Catherine Beard said that the April result continued a consistent run of expansion for the sector during last three months.
“All of the sub-index values were in expansion during April. The key sub-index results for Production (53.8) and New Orders (51.4) were both in positive territory, while Employment (55.0) displayed its highest level of expansion since July 2021".
Despite the improvement in expansion during April, the proportion of negative comments from respondents increased slightly to 58% in April, compared with 57.5% in March, but still down from 59.5% in February. Negative comments during April saw some manufacturers facing a slowdown driven by high costs, global and local economic uncertainty. In terms of positive comments, other manufacturers reported modest growth, driven by rising demand, infrastructure projects, and strong niche markets, despite lingering caution from inflation and supply challenges.
BNZ’s Senior Economist Doug Steel said that “activity is not surging, but a manufacturing recovery seems to be underway with the PMI having improved substantially from its low of 41.4 last June. That said, there remain questions around how sustainable it is given uncertainty stemming from offshore”.
Prices Volatile But Upward Undercurrent
oday’s April Selected Price Indexes displayed a heap of volatility, as is often the case in these monthly indicators. Some caution is warranted before jumping to conclusions on what they collectively mean for Q2 CPI.
Budget 2025 Preview
At the Half-Year Economic and Fiscal Update, a small fiscal surplus was projected in the year to June 2029. Indications from Finance Minister Willis are that Budget 2025 will keep to this target. But the path back to surplus is likely to remain extremely challenging. It is being threatened by downgrades to economic growth forecasts and subsequently the Government’s ability to raise revenue.
Labour Market Loose
Today’s Q1 labour market statistics were always going to feel like old news from a market’s perspective, given the big changes to the global trade and growth outlook through April. But they do set the starting point for the labour market. It is loose and wage inflation is easing.
Financial Markets Wrap
Jolly June
• Risk appetite improved in June, interrupted briefly by Middle Eastern conflict, sending global equities to fresh record highs
• Tariffs and US fiscal policy were relegated to the sidelines in terms of market drivers
• USD indices fell for a sixth consecutive month, to fresh three-year lows; NZD/USD rose over 2% to just under 0.61
Currencies consolidate in May
• The de-escalation of the US-China trade war resulted in much calmer market conditions in May, compared to April’s turmoil
• Net major currency movements were modest, even if the USD was broadly weaker again. NZD/USD rose ½%
• Higher risk appetite and more focus on US fiscal policy saw upside pressure on global rates
Interest Rate Strategy
Upcoming NZGB May-2031 tap syndication
At the Budget Economic and Fiscal Update in May, New Zealand Debt Management (NZDM) announced it expected to undertake three tap syndications of existing nominal NZ Government Bonds (NZGB) in 2025/26. In addition, a new September-2050 inflation indexed bond will be established. NZDM has indicated the first transaction will be a tap of the existing May 2031 line, before the end of August.
Full Interest Rate Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe
Post Budget NZGB supply update
Bond programme revised modestly higher
New Zealand Debt Management (NZDM) updated the bond programme today alongside the Budget Economic and Fiscal Update (BEFU). Forecast gross New Zealand Government Bond (NZGB) issuance has been increased by a total of NZ$4 billion over the forecast period to June 2029, compared with the Half Year Economic and Fiscal Update (HYEFU) in December. Gross issuance has been revised higher, at each borrowing programme update since December 2021, reflecting ongoing fiscal pressures.
Full Interest Rate Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe
Rates Strategist: Lower rates amid subdued rebound
• Headwinds from the global growth downshift, combined with subdued domestic high frequency activity indicators, skew the risks for front end NZ rates lower. The RBNZ is expected to cut rates by 25bp at the May 28 Monetary Policy Statement, signal room for further easing, and shift its modelled OCR path lower.
• Curve steepening is likely to resume now the April overshoot has corrected.
• The compensation for taking duration risk is improving. 10Y NZGBs offer the highest FX hedged yield within developed markets. Although the backdrop for duration appears favourable, we have a higher conviction for shorter maturities.
• NZ swap spreads are expected to consolidate ahead of the borrowing programme update alongside the Budget on 22 May. A pre-Budget speech by Finance Minister Willis implied continued fiscal pressures amid downward revisions to growth forecasts by the Treasury.
Full Interest Rate Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe
Markets Outlook
Q2 Labour Market Preview
We expect next week’s data to portray a weak labour market via a dip in employment, push higher in the unemployment rate, and easing wage inflation. The labour market looks to be tracking softer than the RBNZ forecast in May. Today’s filled jobs data supports that view. Business and consumer confidence updates are due this week.
Green Light for August Easing
Any fear that today’s CPI outturn (0.5% for the quarter, 2.7% for the year) might convince the RBNZ to keep its finger on the pause button should have been shattered by the news that prices rose “just” 0.5% in the June quarter. We think an August cut is now as close to a done deal as can be the case.
Turning to inflation
The last few days have seen a number of high frequency activity indicators support our view that not only did the economy stall in the June quarter but it is also struggling to gain momentum going into Q3. Indeed, so poor have these indicators been that we have lowered our expectation for Q2 GDP to -0.2%, from zero, and have made exactly the same adjustment for Q2 employment. Attention turns to inflation over the coming week, with June Selected Prices on Thursday ahead of the Q2 CPI next Monday.
Eyes on RBNZ
Last week, we moved to expect no change in the OCR at this week’s RBNZ meeting. That is not to say we don’t still think there is a chance of, and indeed a strong case for, a 25bp OCR cut this week from its current 3.25%. But we reached the conclusion that it will be hard for the RBNZ to cut at this meeting largely because post the May MPS it suggested market pricing would be a key driver of its decision. The market is currently pricing little chance of a cut on Wednesday. As for data, the June PMI due on Friday is of most interest after last month’s plunge.
In confidence . . .
It is looking increasingly likely the RBNZ will stand pat when it delivers its July 9 Monetary Policy Review. Our formal view is for a 25 basis point cut but we recognise that the odds of this are diminishing by the day. Be that as it may, we think changing our call before seeing Tuesday’s NZIER Quarterly Survey of Business Opinion would be ill-advised.
Tensions and Trade
Further escalation in Middle East tension over the weekend brings an expectation of risk off and higher oil prices. If the oil price lift were to persist or extend, it threatens a lift in the cost of imports and to put upward pressure on inflation and potentially inflation expectations. None of this would be good for growth. This week’s trade data for May is expected to show very strong export growth and a rapidly narrowing annual deficit.
Economy Hits Q2 Brick Wall
Timely indicators like the PMI and PSI suggest the economy hit a brick wall during Q2. This does not deny what looks like a firm expansion in Q1, expected to be confirmed in this week’s data. May’s selected prices are expected to support our view that annual inflation pushed higher in Q2. A significant escalation in Middle East tensions has seen oil prices spike, adding yet more uncertainty to the global economic outlook. NZ’s large current account deficit is seen narrowing in Q1.
Q1 GDP Preview
We expect next Thursday’s Q1 GDP data to confirm further economic recovery. The output gap still appears wide and there is much uncertainty around the path ahead, but recovery looks as though it continued in the first quarter of the year.
Trade Mixed For Q1 Growth
Issues surrounding tariffs continue to keep global economic uncertainty elevated. It keeps coming. Today’s Q1 goods trade data looked highly supportive of Q1 growth, while services trade looked the polar opposite. We await more Q1 GDP partials over the coming week. The trade data confirmed rising tradeable inflation which we think is peaking.
RBNZ to cut this week
We expect the RBNZ to cut the OCR by 25 basis points on Wednesday and signal further reductions ahead. Whatever the Bank does, it needs to highlight the massive uncertainty that is pervasive, and the fact that such uncertainty means very little about the future can be taken for granted including future interest rate settings. Business expansion plans may be curtailed by uncertainties offshore. New season milk price forecasts are due and likely to be solid.
RBNZ to continue easing
Donald Trump’s policy machinations are making it a horrible time to be a central banker. But decisions still have to be made, and we think the negative growth impact of the US administration’s policy gyrations add to the need for the RBNZ to continue its easing cycle. Meanwhile, the 2025 Budget takes centre-stage. We expect multiple new spending announcements but the majority of which will be funded from savings made elsewhere.
Activity indicators feature
Sadly, the only game in town is Mr Trump and his tariff antics. However, while we remain at the mercy of offshore developments there are still domestic indicators that need to be watched closely for first indications as to how international developments might start to impact local activity. The key data we will be watching over the next week will be the BNZ-Business NZ Performance of Manufacturing Index, released Thursday, and the Performance of Services Index Monday May 19.
Still No Clarity
Financial markets’ extreme angst might have passed for the time being, with risk assets recently bouncing off their lows, but the economic impact of the US-driven global trade shock is only just beginning to show up in indicators.
Markets Today
BNZ Markets Today
As expected, the Fed kept policy on hold and there were only minor tweaks to the release. There was a nod to growth slowing, noting economic activity “moderated in the first half of the year”, previously characterised as expanding at a solid pace. “Uncertainty about the economic outlook remains elevated”, the statement removing the reference to uncertainty as having diminished. In a repeat, “labour market conditions remain solid” and “inflation remains somewhat elevated”.
BNZ Markets Today
The key market movement overnight has been a notable rally in US Treasuries, led by the long end of the curve, with rates down between 4-9bps. There have been a number of potential drivers listed by traders explaining the move. Tomorrow, the US Treasury will announce its debt-issuance plans and the expected strategy is one that keeps a lid on longer-term yields, by preferring to issue cheaper short-term debt. Traders might also be reducing short positions, ahead of the Fed’s monetary policy update tomorrow, where there is a chance of the door being opened for a September rate cut.
BNZ Markets Today
After digesting the weekend news of a US-EU trade deal, the net result has been a slump in the euro, a modest fall in European equity markets and a modest fall in European bond yields. The USD is broadly stronger, reversing last week’s loss. The NZD has sustained a move back below 0.60, while NZD/EUR is up ½% to 0.5150.
BNZ Markets Today
US equities ended last week on a positive note with the S&P hitting fresh all-time highs set against the backdrop of a solid earnings season and hopes for further trade deals as the August 1 deadlines looms. More than 80% of S&P 500 companies have exceeded profit estimates. The S&P traded up towards 6,400 and closed 0.4% higher on the day. European equities were little changed and major Asian indices retraced following recent solid gains. The US dollar was generally firmer against G10 currencies and global bond markets were stable.
BNZ Markets Today
Global equity markets have extended recent gains with the S&P trading to a fresh intra-day record high and major European and Asian stock indices advancing. The Nikkei posted a further strong gain closing 1.6% higher. Global bond yields are higher amid resilient US economic data. The ECB left rates on hold as expected and the market trimmed expectations for further easing. The US dollar advanced against G10 currencies.
BNZ Markets Today
Risk sensitive assets remained well supported amid optimism about the US reaching deals with key trading partners ahead of the August 1 deadline. A deal was announced with Japan yesterday and there is a growing expectation of a similar deal with the European Union. The developments contributed to further gains for global equities. The S&P reached a fresh record high near 6350 and the Euro Stoxx closed 1% higher. Asian stocks rose the most in a month. Treasury yields moved higher, and the US dollar was mixed against G10 currencies.
BNZ Markets Today
US equities recovered from a dip on the open and are little changed. The S&P is consolidating near record highs with limited economic data or other catalysts to provide direction. US Treasury Secretary Bessent said he will meet with Chinese officials next week, for a third round of trade talks, and he predicted several deals between now and the August 1 deadline. The US dollar is weaker against G10 currencies and treasury yields are lower.
BNZ Markets Today
US equities have started the week on a positive footing with the S&P trading to a fresh intra-day record high. The index extended recent gains above 6300 with limited first-tier economic data to provide the market with direction as investors look ahead to a busy week for corporate earnings. US equities have traded to new record levels despite uncertainty whether US trading partners will be able to reach a deal before the latest tariff deadline on 1 August. In Europe, the Euro Stoxx index closed modestly lower.
BNZ Markets Today
Markets closed last week on an uneventful note, with US equities remaining flat around record highs, slightly lower US Treasury yields and modest net moves in the currency market during the Friday night session.
BNZ Markets Today
Stronger than expected US economic data have supported US equity markets and the USD, without doing any harm to Treasuries.
US retail sales figures were stronger across the board, with the headline index rising 0.6% against an expected gain of 0.1%. Stronger auto sales inflated the result, but even excluding these, core sales were robust. The data are in nominal terms, so includes the impact higher inflation, but the market still saw the data as conveying a picture of robust spending, despite policy uncertainty and high mortgage rates.
BNZ Markets Today
There was a bit of intraday volatility when government officials suggested President Trump had expressed support for the idea of firing Trump at a discussion with Republican lawmakers. This saw weaker equities, lower Treasury yields and a weaker USD. However, less than an hour after the media had caught onto this story, Trump said he was not planning on doing anything, “I don’t rule out anything, but I think it’s highly unlikely. Unless he has to leave for fraud.” Trump said he had spoken to lawmakers about the concept of firing him and asked what they thought, “Almost all of them said I should. But I’m more conservative than they are”. Markets subsequently reversed course.
BNZ Markets Today
US CPI data were close to market expectations, confirming that the impact of higher tariffs is beginning to lift inflation. Headline inflation rose 0.3% m/m, driving the annual increase up three-tenths to 2.7% while the ex-food and energy measure rose 0.2%, seeing the annual increase tick up to 2.7%. For items where tariffs have been imposed, there was visible sign of higher inflation, including toys, household furnishings, sports equipment and appliances all inflating at multi-year highs.
BNZ Markets Today
There has been a muted market reaction to Trump’s weekend threat to raise tariffs on the EU and Mexico. US equities are higher and US Treasury yields show a minimal lift in rates. The USD is broadly stronger, although movements have been modest. The NZD has sustained the modest fall during NZ trading hours.
BNZ Markets Today
Friday ended the week as it began, with President Trump issuing more threats to raise tariffs. This saw equity markets trade on a more cautious note and contributed to a modest broad-based lift in the USD. Bond investors weren’t impressed with the messaging and global rates rose, seeing the US 10-year rate close near the top end of its weekly trading range, above 4.4%. Risk appetite is likely to remain suppressed as the new week begins after Trump threatened higher tariffs for the EU and Mexico over the weekend.
BNZ Markets Today
Newsflow remains light, with nothing in the way for global equity markets to probe fresh record highs. US Treasury yields are slightly higher. Against a backdrop of higher risk appetite, commodity currencies have outperformed, with the AUD the best performing.
BNZ Markets Today
Newsflow has been light, but equity investors continue to pay little regard to Trump’s tariff threats, with US and European markets stronger overnight. US Treasury yields have reversed course, with modest falls. Net currency movements have been small and there was little market reaction to the RBNZ’s no-change policy decision yesterday.
BNZ Markets Today
Markets have settled somewhat after the initial shock yesterday of Trump starting to announce the punitive tariffs that will be in place from 1 August for countries where trade negotiations haven’t gone well. US equities are flat, US Treasury yields are higher, and the curve is steeper again. Net currency movements have been modest, with the AUD a clear outperformer after the RBA shocked the market by not cutting rates.
BNZ Markets Today
Trump’s tariff policy is back in the headlines, as the key 9-July date approaches, which was the deadline for the end of the pause in reciprocal tariffs that were announced on Liberation Day. Ahead of that date, threats of higher tariffs have begun to be rolled out and markets are not liking it, although the new deadline for negotiation is now 1-August. US equities are lower, US Treasury yields are higher with a steeper curve, and the USD is broadly stronger, with the NZD probing sub -0.60.
BNZ Markets Today
Last week ended on a quiet note, with US markets closed for the Independence Day holiday. There was a whiff of risk aversion in the air as investors looked towards 9-July, the day when the 90-day pause in Trump’s reciprocal tariff policy expires. Ahead of this date, a number of tariff-related stories were doing the rounds on Friday, with follow-up reports during the weekend.
BNZ Markets Today
A stronger than expected US employment report sent US rates higher across the curve. Markets closed early ahead of the US Independence Day holiday, with the S&P500 up 0.8% to a fresh record high. The USD is broadly stronger, seeing the NZD nudge down to 0.6065.
BNZ Markets Today
The S&P remained well underpinned and recorded a new record high after President Trump announced a trade deal with Vietnam. European equities also gained with the Euro Stoxx index advancing 0.7%. UK gilts and the pound fell on fiscal concerns, which weighed on the long end of government bond markets, including US treasuries. Brent crude prices increased almost 2% to US$69, ahead of an OPEC+ meeting this weekend, which is likely to see an increase in production quotas.
BNZ Markets Today
US equities are little changed with the S&P starting the month near flat and consolidating near a record high. Treasury yields increased, and the US dollar rebounded from earlier losses to be little changed. President Trump’s tax and spending bill has passed the Senate. The Congressional Budget Office has estimated the bill would increase the deficit by $3.3tn over the next decade.
BNZ Markets Today
US equities are ending the month on a positive footing with the S&P trading to a fresh intra-day record high. Investor sentiment has been underpinned by signs of progress on trade negotiations and the prospect of easier policy monetary policy from the Federal Reserve. Bloomberg reported that the European Union is prepared to accept a trade deal, that includes a universal 10% tariff on most exports, with some key exemptions. The S&P has gained close to 10% in the June quarter outperforming the Euro Stoxx, which has risen less than 2%, and other major global indices.
BNZ Markets Today
The S&P closed at fresh record high on Friday in a whipsaw session. Equities dipped temporarily after news that President Trump had terminated trade discussions with Canada in response to the country’s planned implementation of a digital services tax targeting American companies. A late rebound saw the S&P close 0.5% higher aligning with the solid gains made by European indices. Treasury yields were little changed, and the US dollar was mixed against G10 currencies.
BNZ Markets Today
With geopolitical risk no longer a market focus, US equities have continued to push higher, while speculation that the next appointed Fed Chair will be dovish and announced early, supported a backdrop of lower US rates and a weaker USD.
BNZ Markets Today
Market conditions are relatively calm with only modest price action, with a lack of newsflow and the investors believing that the war between Iran and Israel is largely over for now.
BNZ Markets Today
Global equity markets have made solid gains following the ceasefire between Israel and Iran which has provided optimism for a lasting resolution to the conflict. Brent crude fell towards US$67 per barrel and below the level ahead of Israel’s attacks on Iran’s nuclear sites. The S&P looked past weak consumer confidence data, and advanced more than 1%, with the index closing in on its all time high reached back in February. Treasury yields declined weighing on the US dollar.
BNZ Markets Today
After the US became directly involved in the conflict between Iran and Israel, following its surgical bombing of three nuclear sites in Iran on Sunday, there was focus on how markets would react at the start of the new week. Risk assets opened weaker and oil price spiked higher, but in overnight developments, there has been a complete reversal of that move.
BNZ Markets Today
The further escalation in the Middle East conflict over the weekend, after the US attacked Iranian nuclear sites, increases the likelihood of a further spike in oil prices and will weigh on investor risk appetite. Brent crude futures had dipped towards US$74 on Friday, amid increased hopes for a diplomatic solution for the Iran-Irael conflict but subsequently rebounded towards US$76. The S&P closed modestly lower while the Euro Stoxx advanced 0.7%. The US dollar was firmer against a basket of developed market currencies. Treasury yields declined following dovish comments from Fed Governor Waller.
BNZ Markets Today
In the lead up to the US Federal Reserve’s rate decision this morning, US equities traded modestly higher and treasury yields were lower across the curve. Currency markets were generally stable, although the Swedish krone fell sharply, after the Riksbank cut rates to 2.0% and signalled more easing is possible. Brent Crude prices are little changed around US$76 per barrel, having recovered from an earlier dip, after President Trump said Iran had reached out and wants to negotiate.
BNZ Markets Today
Risk sentiment is weaker as the US has become more involved in the Israel-Iran conflict. Global equities are weaker, US Treasury yields are slightly lower, and the USD is broadly stronger, with the NZD falling towards 0.60.
BNZ Markets Today
The new week began with market focus on the Middle East, amidst the fourth day of missiles firing between Israel and Iran. With Israel’s aerial attack dominating, the conflict not spreading to include other countries, and oil infrastructure not targeted, the market has already adopted a sanguine view and risk assets have recovered.
BNZ Markets Today
There was a risk-off tone across financial markets which began on Friday afternoon after Israel launched unilateral strikes against Iran’s nuclear programme. The subsequent retaliation by Iran further escalated the conflict. The S&P declined 1%, after recovering off the session low, on hopes of a de-escalation via diplomatic channels. However, the US-Iran meeting in the weekend was cancelled, and with no sign of a let-up in hostilities, risk sensitive assets face a challenging start to the trading week. Gold prices advanced above US$3430 pre ounce.
BNZ Markets Today
Softer than expected US CPI data drove down US rates and the USD, although European currencies have been the main beneficiary. The NZD and AUD are little changed overnight after a disappointing end to US-China trade talks, with no progress other than agreeing to what was previously agreed, although full details have yet to be officially released.
BNZ Markets Today
It has been another uneventful trading session with light newsflow. US equities are slightly higher, US treasury yields have range traded and currency movements have been small, with the NZD tracking just under 0.6050.
US and China trade talks entered their second day and were ongoing into the London evening as we go to print. A Treasury official said the session could stretch into the night as the parties work out technical details, resuming talks at 7am NZ time after a break for dinner.
BNZ Markets Today
Newsflow has been light to start the week, and we await news from London around US-China trade talks. US equities are up modestly, and US treasury yields are down modestly. The USD has started the weak on a soft note with a broadly-based fall, helping the NZD push up through 0.6050.
BNZ Markets Today
US equity markets made solid gains into the end of last week supported by labour market data and further signs of easing US-China trade tensions. The S&P closed 1% higher and reached the psychological 6,000 level for the first time since February, as steady employment growth helped ease concerns about an imminent slowdown. In Europe, the Euro Stoxx index made modest gains. Treasury yields closed higher, and the US dollar gained against G10 currencies. Brent crude traded above US$66 per barrel and is back at the top end of the one-month range.
BNZ Markets Today
There have been a number of market-moving events overnight, including a call by President Trump and President Xi, an ECB policy update, interpreted as a hawkish cut by the market, and higher than expected US initial jobless claims. The net result is little change in US equities and higher global rates. The USD reversed an earlier loss. The NZD traded at a fresh 2025 high of 0.6080 before falling back to 0.6040.
BNZ Markets Today
US treasury yields declined amid soft US economic data. Equity markets were less impacted, and the S&P is marginally higher in afternoon trade. Global equities reached a fresh all time high, as measured by the MSCI All-Country World Index, above the previous peak in February. The index has been underpinned by large gains by European stocks with the Euro Stoxx up 10% in 2025. The US dollar declined against G10 currencies.
BNZ Markets Today
US equities are stronger, supported by the JOLTs report, which showed resilience in the labour market. US treasuries reversed course after the report, pushing up yields across the curve, and the 10-year rate is up slightly from the NZ close at 4.46%. The USD is broadly stronger over the past 24 hours, with the NZD hovering around 0.60 overnight after trading at a fresh 2025 high yesterday afternoon.
BNZ Markets Today
After registering solid gains of more than 6% during May, the S&P is little changed to begin the new month. US steel and aluminium shares gained after President Trump said he would double tariffs on imports. Trade tensions remain in focus after China and the US accused each other of violating their trade deal from last month and the European Union warned it may speed up retaliatory measures. Treasury yields rose, despite a weaker than expected manufacturing ISM report, and the US dollar is weaker against G10 currencies.
BNZ Markets Today
Risk sentiment received a boost after a US trade court invalidated President Trump’s ‘liberation day’ tariffs, deeming them illegal. S&P index futures gained more than 1%, and the US dollar advanced against G10 currencies, after the ruling was announced in the Asian time zone. However, the S&P retraced from the highs and the dollar reversed course overnight. US treasuries extended the recent move lower in yield supported by a solid 7-year auction.
BNZ Markets Today
Newsflow has been light overnight. US equities are consolidating, with focus on Nvidia’s earnings results after the close later this morning. Global rates are higher for the day, with spillover from a poor ultra-long bond auction in Japan, but the US 10-year rate hasn’t pushed much higher overnight. The NZD has sustained the modest gain seen following the RBNZ’s new neutral bias, following its 25bps rate cut yesterday.
BNZ Markets Today
Following the long US weekend, US equities have jumped higher, and US Treasuries have rallied, in response to the de-escalation of trade tensions between the US and EU. Falls in global rates have been aided by speculation that Japan will address the turmoil in its ultra-long bonds. The USD is broadly stronger, recuperating some of last week’s loss, seeing the NZD probe just below the 0.5950 level.
BNZ Markets Today
Markets have been quiet and newsflow overnight has been light, with the US and UK on holiday. Some trade war de-escalation between US and the EU has supported equity markets. The NZD and AUD have pulled back from fresh year-to-date highs seen during the NZ trading session. The NZD is back down to 0.60.
BNZ Markets Today
Equities tumbled after President Trump threatened to impose aggressive tariffs on the European Union. The S&P dropped more than 1.5% before recovering to end the session 0.7% weaker. The rebound in US equities was supported by US Treasury Secretary Bessent saying the US could strike several large trade deals in coming weeks. Treasuries retraced an earlier rally while the US dollar remained under pressure. Gold prices traded above US$3360 per troy ounce, a gain of 2%.
BNZ Markets Today
US equities have traded higher, as treasury yields retraced from the recent highs, and economic data suggested the economy remained resilient in the face of tariff uncertainty. The US House of Representatives passed Donald Trump’s tax bill which would cut taxes, reduce social spending and increase federal debt. The Euro Stoxx index closed 0.5% lower. Oil prices are little changed. Brent crude is trading near US$64 per barrel despite reports OPEC+ is considering further output hikes.
BNZ Markets Today
Concerns about rising US debt and budget deficits has contributed to further rise in US treasury yields. 30-year bonds are trading back above 5.0%. Rising yields have weighed on the S&P which is down close to 1%. Currency markets were subdued overall. The jump in oil prices in Asian trade, linked to a CNN reported that US intelligence had suggested Israel is preparing to strike Iranian nuclear facilities, has fully retraced. Brent crude is trading around US$65 per barrel.
BNZ Markets Today
Global equity markets are generally higher with decent gains across European and Asian indices. However, US equities are little changed, and consolidating near the recent highs, after a strong rally over the past month. Government bond curves have continued to steepen, particularly at the longer end of the yield curve, with a large selloff in Japan after a weak bond auction. The US dollar is generally softer against G10 currencies, though the AUD underperformed after the central bank meeting.
BNZ Markets Today
Risk sentiment began the week with a soft tone, after the downgrade to the US government’s credit rating by Moody’s Ratings, near the global close on Friday. S&P equity index futures fell more than 1% in Asian trade, treasury yields moved higher with the curve steepening and the US dollar fell. Risk sentiment has rebounded overnight with the S&P fully unwinding its earlier fall and treasuries also recovering.
BNZ Markets Today
Late in Friday’s trading session, Moody’s downgraded the US credit rating from Aaa to Aa1, resulting in a weak close for US Treasuries, which immediately jumped 5bps. The S&P500 had already closed up 0.7% before the announcement but US index ETFs trading after the close fell about 1%. The USD barely fell after making overnight gains after the NZ close. The NZD closed the week around 0.5580.
BNZ Markets Today
Bond and equity investors celebrated weaker US data, taking US rates lower and US equities higher. The currency market shows a risk-off tendency, with safe havens CHF and JPY outperforming against further weakness in the NZD and AUD.
BNZ Markets Today
Markets are in a consolidation mode, against the backdrop of light newsflow. President Trump has been busy in the Middle East posting videos on social media of himself travelling in the region.
BNZ Markets Today
In the aftermath of the Trump’s tariff U-turn that significantly de-escalated the US-China trade war, US equities have made further gains and US Treasuries have looked through the softer-than-expected US CPI report, with yields pushing higher. The USD has reversed course after yesterday’s sharp recovery, helping the NZD recover to 0.5940.
BNZ Markets Today
The new week has begun with some significant moves in market prices, following de-escalation of the US-China trade war, with both parties agreeing to temporarily reduce tariffs to more palatable levels ahead of further talks. Equity markets have soared, led by the US, global rates are much higher, and the USD has recovered strongly across the board. This sees the NZD probing 0.5850.
BNZ Markets Today
US asset markets were largely in a holding pattern into the weekly close ahead of the first official trade talks between the US and China in Switzerland. US equities and treasury yields ended the session little changed with limited first tier economic data to provide the market with direction. European equities advanced. The Dax index in Germany has fully retraced its April drawdown and closed above its previous March peak.
BNZ Markets Today
Risk sentiment is higher on trade war de-escalation with a US and UK trade “framework” and President Trump providing positive signals on this weekend’s US-China trade talks and telling everyone to buy stocks. US equities are up over 1% and Treasury yields are up 10-13bps. Hopes for trade deals have supported the USD across the board and the NZD has fallen to 0.59. GBP has fallen less after the BoE delivered a hawkish cut.
BNZ Markets Today
Further signs of a de-escalation in the US China trade war provided support to risk sensitive assets ahead of the Federal Reserve’s interest rate decision. There was confirmation of trade talks between the US and China. US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer will meet with Chinese officials this weekend in Switzerland. In addition, Chinese officials outlined a range of measures aimed at supporting the economy.
BNZ Markets Today
US equities are lower, US Treasury yields are lower, and the USD is broadly weaker, with the market remaining fixated on tariffs and the impact for the US economy. The NZD is trading with a 0.60 handle this morning.
BNZ Markets Today
Taiwan was in the spotlight during the Asian trading session after another surge in its currency, not helped by speculation around US trade deals. There was spillover into other currencies and the NZD is down a touch overnight after a failed attempt to break back above 0.60. A stronger than expected ISM services index helped US equities recover early losses and pushed up US Treasury yields. The UK and some Asian markets were closed for holidays.
BNZ Markets Today
Global equity markets made solid gains into the end of last week supported by signs of a potential de-escalation in the trade war between the US and China along with resilient US labour market data. China’s Ministry of Commerce said it is assessing the possibility of trade talks with the US and that US officials have repeatedly expressed a desire to negotiate with China on tariffs. Bloomberg reported that China has started to exempt some US imports from tariffs, representing around US$40 billion, aimed at reducing the impact on its economy.
Outlook for borrowers
Outlook for Borrowers: July update
The outlook for NZ interest rates is being driven by a complex interplay between mixed domestic economic data, and heightened policy uncertainty amid trade tensions and geopolitical risks. The level of uncertainty was highlighted by the Reserve Bank of New Zealand (RBNZ) at the May Monetary Policy Statement (MPS), when the Official Cash Rate (OCR) was reduced by 25bp to 3.25%.
Outlook for Borrowers: Post May MPS
The Reserve Bank of New Zealand (RBNZ) reduced the Official Cash Rate (OCR) by 25bp to 3.25% at the Monetary Policy Statement (MPS) on Wednesday. The rate cut was expected by economists and fully discounted by overnight index swap (OIS) market pricing. The decision was reached by a 5-1 majority. The dissenting Committee member preferred to leave the OCR unchanged at 3.50%. There was no discussion of a 50bp cut.
Rural Research
Records and Inflation
Higher prices for some of NZ’s major primary export products have been a feature of the past 12 months. Lamb, beef, and dairy product prices standout with prices over the past month up in the order of 40%, 30%, and 20% respectively over the same period a year ago.