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Financial Market Update: NZRB's Hawkish Stance Contrasts With Slowing Economy - June, 2024

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

Financial markets spent Q2 struggling for direction, bouncing between optimism and pessimism over the timing and scale of rate cuts by the US Federal Reserve (“Fed”). While there were rate cuts in June from the European Central Bank, the Bank of Canada, the Swiss National Bank, and the central bank of Denmark, who all cut their key cash rates by 0.25%, these cuts were expected and have largely been ignored by financial markets. Ultimately, the key to global bond yields remains the Fed and when it starts its easing cycle, which will also impact the New Zealand interest rate curve.

Globally, manufacturing purchasing managers' indexes (“PMIs”) continue to trade in contractionary territory, although service PMIs continue to remain expansionary, which is helping most economies to maintain at least some economic momentum. This has seen the World Bank raise its 2024 global growth projections from 2.4% to 2.6%, although the 2025 forecast was left unchanged at 2.7%.

In New Zealand, the Reserve Bank of New Zealand’s (“RBNZ”) May meeting was one that was eagerly anticipated given the slowing domestic economy. Unfortunately, the statement was more hawkish than initially anticipated, with plenty of references to non-tradeable inflation, a specific reference to the fact that the Committee had contemplated an OCR hike, while the central bank’s economics’ team also upgraded its OCR, CPI, and neutral cash rate projections. However against this, RBNZ Governor, Adrian Orr, confirmed in the Q&A session that he ”doesn’t buy into” a December rate hike, as implied by the OCR projections, while the RBNZ’s Chief Economist described the 80% chance of an OCR hike by December as “spurious!”

June saw the release of the NZ Q1 GDP print, which came in at 0.2% for the quarter and 0.3% for the year. However, despite the headline increase, details below the surface were mixed with only 8 of 16 industry sectors expanding during the quarter. Furthermore, the surge in immigration meant that per capita GDP declined by -0.3% in Q1 and -2.4% over the year. Per capita GDP has now fallen for six consecutive quarters. Other New Zealand data releases also highlighted the slowing nature of the domestic economy, with business and consumer confidence slumping to recessionary levels, retail card spending plummeting, and company liquidations and redundancies accelerating.

Looking ahead, the next RBNZ meeting is on the 10th July, with market pricing projecting the central bank will maintain the status quo. The Q2 inflation update is due a week later on the 17th July, where the focus will be on the ‘stickiness’ of non-tradeable inflation.

Financial Market Update: NZD/USD Chart

FX markets were a lot quieter in Q2 than interest rate markets, as has been the norm throughout 2024. While the NZD has firmed in June against most of its currency pairs, the NZD has essentially reverted towards it’s pre-established Q1 ranges, although most currency pairs broadly remain within the lower quartiles from longer-term perspectives. The outlier is NZD/JPY which reached a 38-year high. Ultimately, the NZD remains broadly range bound; it is just that the range is slightly higher.

While a hawkish RBNZ, and expectations that the Fed will cut later this year, are NZD-supportive, the worsening domestic outlook is becoming an increasing headwind. Currently, the NZD/USD remains in its recent 0.6050 to 0.6250 range, although most market participants are anticipating the pair will grind higher in H2 2024.

Financial Market Update: New Zealand Interest Rate Curve

While the RBNZ has been doing its darndest to dampen speculation of interest rate cuts in 2024, international markets have a different agenda given the rate cuts from the northern hemisphere central banks. Unfortunately, over Q2 New Zealand swap pricing has firmed, broadly rallying 15 basis points across the curve. Currently, financial markets are pricing in two rate cuts from the Fed and one rate cut from the RBNZ by year-end, with a further 25% chance of a second RBNZ cut.

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 funding arrangements and cross-border flows in order to protect against adverse movements and unnecessary risk and to ensure a sustainable business. 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.

  4. 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.

  5. If you have a sustainability strategy, tracking progress towards achieving targets, and considering linking it to your financing.

  6. Undertaking an ESG Health check to consider the key sustainability risks that your business could be facing now, and into the future.

  7. 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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4 days ago
Rated 5 out of 5 stars.

Great article!

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