Market eyes August OCR decision
New Zealand financial markets remain quiet as investors await the next big move from the Reserve Bank (RBNZ), according to Westpac senior economist Darren Gibbs (pictured).
“For the most part it has been another subdued week for Kiwi financial markets, with the focus for local investors mostly on a busy week of central bank meetings and important data releases across the globe,” Gibbs said in Westpac’s weekly analysis.
He added that markets continue to price an 85% probability of a 25bp cut to the official cash rate (OCR) on Aug. 20, in line with Westpac’s view, with a better-than-even chance of another 25bp cut in early 2026.
Global bond market trends are reinforcing the local outlook, with Kiwibank economists describing a “big, bold and beautiful bull steepener” as falling offshore yields and soft domestic data increase the likelihood of deeper RBNZ cuts.
US tariffs raise export concerns
Gibbs noted one key international development for New Zealand.
“President Trump’s announcement that goods from New Zealand will face a tariff of 15% from 1 August, up from the 10% tariff that had been announced originally on 2 April,” he said. “This is also higher than the tariff that will be faced by Australian exporters, which was confirmed at 10%, putting New Zealand at a slight competitive disadvantage in key exports such as beef and lamb.”
While “disappointing and unhelpful,” Gibbs said the tariff will likely be manageable for most commodity exporters given current high prices and a supportive exchange rate. Wine producers, however, could face more pressure.
Local business and consumer confidence softens
Domestic data shows a mixed picture for the economy.
- ANZ’s July business survey indicated general confidence and year-ahead activity remain high in agriculture but weak in retail, construction, and manufacturing.
- Residential construction expectations dropped to their lowest in a year, though the measure is volatile.
- Inflation expectations for the next three months eased, while one-year-ahead forecasts remained steady at 2.7%.
Consumer confidence also slipped, with the ANZ index falling 4 points to 94.7, weighed down by food price inflation and cautious views on the economy.
Jobs data signals labour market cooling
Labour market indicators remain under pressure.
- Monthly Employment Indicator for June showed filled jobs rose 0.1% m/m but May was revised to a 0.1% fall.
- June quarter jobs fell 0.3%, the fifth straight quarterly decline.
- Public sector jobs rose 0.3% q/q, but private sector jobs fell 0.5% q/q and 2.4% y/y.
Gibbs expects HLFS data on Wednesday to confirm softening conditions:
“We expect that the HLFS will report a 0.3% decline in employment in the June quarter, in contrast with the 0.2%q/q increase that the RBNZ had forecast in the May Monetary Policy Statement,” Gibbs said.
“We expect that job losses will likely continue to be concentrated amongst younger people, some of whom may have simply exited the labour force and returned to education and other training.”
The unemployment rate is expected to rise to 5.3%, with annual wage growth likely to ease to 2.3%, consistent with low and stable inflation.
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