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Financial Market Update: Navigating The Storm - September, 2023

Dwayne Jones, an experienced treasury specialist at Bancorp provides a quarterly finance market update, dissecting the current state of the New Zealand market.

As we mentioned in in August, September and October are known as months of ‘higher-than-usual’ volatility, and September 2023 lived up to its reputation as central bankers struggled to allay inflationary fears and traders/speculators adopted ‘risk-off’ strategies.

Equity markets and bond prices both fell sharply, which contributed to higher yields and a stronger US-dollar. The Nasdaq fell -6.7% as investors attempted to diversify away from the ‘magnificent 7’, the S&P500 fell -5.2% to record its worst monthly performance since December, while the DJI fell -3.3%. Bond markets also struggled to attract buyers, which saw yields rally strongly throughout the month with the 10-year US Treasury yield reaching a 16-year high of 4.65% while the 2-years is threatening to breach its 14-year high at 5.27% while oil prices continued their rebound from their June lows with Brent rallying from USD70.00 to a high of USD97.67.

The key driver of financial market volatility in September was the Federal Reserve (“Fed”), and while they maintained their benchmark Fed funds range at 5.25%-5.50% at their September meeting, the central bank indicated it expects one further rate hike before year-end with fewer rate cuts in 2024 and 2025 than previously indicated. The European Central Bank (“ECB”) stuck to its guns and raised their key interest rates for a 10th consecutive time, this time by a further 25 basis points, while the slowing Chinese economy continues to have a profound impact on the global economy, highlighted by a poor Q2 GDP print with growth falling to just 0.8% threatening the government's 5.0% 2023 target. To support the slowing domestic economy the Peoples Bank of China (“PBoC”) was also active in funding markets cutting various interest rate levers.

Ahead of the general election, the New Zealand Treasury's Half Year Economic and Fiscal Update (HYEFU) highlighted Treasury will require an additional NZD9bn of funding over the next 4 years, however, the expected borrowings were not as severe as initially forecasted, which is a positive. The Treasury is forecasting the local economy will avoid a 'double dip' recession, which was supported by the Q2 GDP print which exceeded expectations at 0.9% while, for the year to June, GDP reached 1.8%. But that was where the good news ended with March 2024 growth downgraded from 2.2% to 1.2%, the unemployment forecast was upgraded to 4.6% from 4.1%, while the 2023-2024 budget deficit is expected to reach NZD11.4bn with the expected return to surpluses pushed out for a further year until 2027. Ultimately, businesses should prepare for a slowing economy and higher interest rates, while consumers should prepare for a tighter labour market with higher cost of living inputs.

The NZD has weakened against the USD every September over the last 5-years, and while it was also lower in September 2023, it was amongst the strongest performing currencies having ‘only’ fallen -0.8% whereas the AUD weakened -2.0%, the JPY -2.8%, and the EUR -3.2%. This has, unsurprisingly, contributed to NZD strength via the crosses. The underlying weakness is derived from 3-core factors: Firstly, the Fed’s higher-for-longer interest rate rhetoric is making the USD more appealing, second, the poor economic performance of the Chinese economy which is having a negative impact on New Zealand exports, and lastly, domestic challenges and the higher interest rate environment are increasing the risk the New Zealand economy could slip into a recession. Until these factors change, we should continue to expect heightened NZD volatility, and while we anticipate a modest recovery for the NZD into year end, we are increasingly concerned about 2024.

Despite the RBNZ holding the OCR at 5.50%, NZ swaps are now at decade highs as the 3-key factors above have contributed to a ‘higher-for-longer’ domestic mantra, despite growing fears of a recession. Wage inflation continues to underpin inflationary pressures globally, and it is no different in New Zealand and with unemployment remaining near its all-time 3.2% low at 3.6%. We shouldn’t expect a significant change in the interest rate environment until we see a surge in unemployment. This ultimately supports comments made by the RBNZ Governor, Adrian Orr, at the August MPS meeting when he stated that New Zealand needs a “controlled slowdown” in order to bring inflation under control.

Market Update Insight: Here are a few key takeaways for New Zealand businesses in light of the recent events

As pro-active Treasury specialists, it is important that companies actively manage their funding arrangements and cross-border flows in order to protect against adverse movements and unnecessary risk. This includes, but is not limited to:

  1. Reviewing your treasury policy to ensure it is fit for purpose, especially given the heightened volatility within the global economy. And if you don’t have one … get one asap!

  2. Make sure the policy is covering your actual exposures. It’s not just FX and interest rates, but working capital, term-debt, commodities, cash, funding, and liquidity.

  3. Maintain policy compliance. This is what protects you and the company. Diversify export channels: The export sector, particularly the dairy sector, has been struggling in recent times. Businesses should consider diversifying their export channels to reduce their reliance on a single market or product, which can help them weather the impact of market fluctuations.

  4. Review your transactional banking arrangements, receivables management, and forecasting. Cash-flow is imperative in protecting all businesses, ensure you are maximising the utilisation of cash and working capital management within your company’s receivable and payable processes.In summary, New Zealand's economy faces challenges from both domestic and international factors. While the RBNZ's rate hike may have been an attempt to avoid pre-emptive rate cuts, it may ultimately contribute to an impending recession. Companies should proactively manage their funding arrangements and cross-border flows to protect against adverse movements and unnecessary risk.


This article was provided by Dwayne Jones, an experienced treasury specialist at Bancorp. Further quarterly reports will be provided by Dwayne and his team to keep you all up to date with the state of the market. For more information contact Dwayne via email at

Bancorp accepts no liability for any actions taken or not taken on the basis of this information and it is not intended to provide the sole basis of any financial and/or business evaluation. Recipients of the information are required to rely on their own knowledge, investigations and judgements in any assessment of this information. Neither the whole nor any part of this information, nor any reference thereto, may be included in, with or attached to any document, circular, resolution, letter or statement without the prior written consent of Bancorp as to the form and content in which it appears.

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