Recent policy changes have had little effect, and confidence levels remain low. The Governor of the Reserve Bank of New Zealand (RBNZ) mentioned a slower response to recent interest rate cuts than expected. Global uncertainties are impacting both business and consumer confidence in New Zealand. Tariffs are still a concern, as highlighted by the RBNZ’s Assistant Governor, who criticized their presence.

New Zealand House Prices

The RBNZ Chief Economist predicts that house prices in New Zealand will not change for at least the next year. The ongoing tariffs and trade barriers have caused a negative impact on global demand, according to the RBNZ Governor. Inflation in New Zealand is under control, as stated by the RBNZ Governor, who noted that the economy is nearing the end of the inflation process. The Reserve Bank is hinting at the possibility of further easing since recent rate cuts haven’t energized the economy as intended. Business confidence remains low, with the latest ANZ-Roy Morgan survey for August showing a drop to 81.5, indicating a pessimistic outlook. This suggests that the bank might need to take stronger actions to reach its goals. Given this situation, we should prepare for lower interest rates in the coming weeks. This could include using interest rate swaps where we receive the floating rate, expecting further cuts to the official cash rate. These strategies could become more profitable if the central bank delivers the “substantial kick” it has spoken about.

Impact on the New Zealand Dollar

This cautious approach makes the New Zealand dollar less appealing compared to other currencies. We should think about using options to bet on a weaker kiwi, like buying NZD/USD put options. This way, we can profit from a possible decline while limiting our risk. The forecast of stable house prices for the next year eliminates a significant source of domestic inflation, allowing the RBNZ more flexibility. Recent data from the Real Estate Institute of New Zealand shows that median house prices nationwide dropped 0.5% from the previous month. A soft housing market enables the bank to concentrate on boosting weak business investment and consumer spending. With inflation under control, the bank’s main focus shifts to external threats like trade tariffs. The last quarterly Consumer Price Index (CPI) showed inflation at just 0.4% for the quarter, resulting in an annual rate of 2.1%, which falls in the lower half of the target range. These global uncertainties create negative demand that the RBNZ may need to address with looser monetary policy. It’s important to remember the bank’s bold policy approach during the post-pandemic slowdown of 2023-2024. This shows a readiness to take significant actions when faced with ongoing economic challenges. If confidence does not improve quickly, we might see another major rate cut before the end of the year. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now