The New Zealand Business Performance Index (PSI) rose from 46.9 to 51.5 in December, signaling a recovery in the service sector. This movement is above the neutral level of 50, indicating better business conditions. When the index is above 50, it shows that more businesses are enjoying positive conditions than those facing challenges. This information may affect the Reserve Bank of New Zealand’s monetary policy, as it reflects the health of a significant part of the economy—the service sector.

Impact On Markets

Markets may react positively to this data, potentially enhancing the New Zealand dollar’s value. Traders will keep an eye on other economic indicators in the months ahead to gauge New Zealand’s economic trajectory. Overall, the higher PSI indicates a revival in business confidence, which could support further economic growth despite ongoing global uncertainties. The December 2025 PSI increase to 51.5 from 46.9 clearly shows that the service sector is expanding again. This strengthens our view that the New Zealand dollar could rise in the following weeks. We expect continued buying in the kiwi as the market adjusts to this positive change.

Monetary Policy Implications

This strong data comes at a time when the Reserve Bank of New Zealand is concerned about persistent inflation, which was last at 4.7% in the fourth quarter of 2025. The recovery in the service sector makes it unlikely that the RBNZ will consider cutting interest rates, keeping the Official Cash Rate steady at 5.50%. Thus, we see value in positions that anticipate short-term New Zealand interest rates remaining high. The strength in the service sector is also backed by a relatively tight job market, with unemployment around 4.0% at the end of last year. Together, these factors suggest that the anticipated broader economic slowdown may not be as severe as expected. This outlook should support risk assets linked to the New Zealand economy. Given this perspective, we are looking to buy near-term call options on the NZD/USD pair to capture potential gains. The improved sentiment could lead to a quick price increase, and options offer a way to manage risk while participating. We will be monitoring implied volatility to find good entry points in the next week or two. Beyond currency, this news is also positive for New Zealand stocks, particularly in consumer-focused service sectors. We may consider buying call options on the NZX 50 index or specific companies poised to benefit from this recovery. This provides another opportunity to reflect a positive view on the domestic economy. Create your live VT Markets account and start trading now.

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