Roasted Kiwi
• For a second consecutive month, the NZD was a clear underperformer, struggling after a poor Q2 GDP outturn
• By month-end, the market had priced in the OCR falling just below 2.25%, implying at least another 75bps of cuts
• NZD/USD fell 1.7%, with the NZD showing even larger falls on NZD/AUD and NZD/EUR crosses, to multi-year lows
RBNZ’s dovish pivot deals a blow to NZD in August
• Downward revision to US payrolls and Fed Chair Powell opening the door to a September easing supports risk appetite
• US rates lower and curve steeper; global equities power up to fresh record highs
• RBNZ also adopts a dovish pivot, driving down NZ rates; broad USD weakness, but NZD a laggard as NZ-global rate spreads fall
The cloud lifts on tariffs
• Tariff threats and trade deals were a key theme in July; tail risk of a global trade war evaporated as countries capitulated to Trump’s demands; more certainty provided on where the US is landing on tariffs
• Risk appetite higher, but closing of short positions in the USD drove broad gains, following its slump in the first half of 2025
• NZD/USD down 3½%, with mainly small net changes on the crosses