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    New Zealand’s Labour Cost Index for the fourth quarter missed predictions by 0.1%

    by VT Markets
    /
    Feb 4, 2026
    New Zealand’s Labour Cost Index for the fourth quarter grew by 0.4%. This is lower than the expected 0.5% increase. This slower wage growth may influence inflation and future economic policies.

    Faster Than Expected

    The soft wage growth in the fourth quarter of 2025 signals that inflationary pressures in New Zealand are easing more quickly than anticipated. This gives the Reserve Bank of New Zealand (RBNZ) a solid reason to take a more cautious approach in its upcoming meetings. Markets are likely to consider the possibility of interest rate cuts happening sooner than earlier thought. Traders may want to prepare for lower interest rates using derivatives. We expect changes in Overnight Index Swaps (OIS) to show a greater chance of a rate cut by the August 2026 meeting, which was once considered unlikely. Two-year swap rates, currently around 4.65%, might dip below the critical level of 4.50% as traders anticipate a complete easing cycle. For currency traders, this information suggests potential weakness for the New Zealand dollar. We predict that the NZD/USD pair, now trading near 0.6180, will experience downward pressure, making put options with strike prices around 0.6100 and 0.6050 more appealing. Historically, when expectations for RBNZ rate cuts solidified, like in the second half of 2023, the Kiwi dollar typically underperformed against the US dollar by 2-4% in the following quarter.

    RBNZ’s Shift in Policy

    This labor report highlights the significance of other recent data, including the Q4 2025 GDP figures from December, which showed minimal growth of just 0.1%. With both economic activity and wage pressures weakening, attention will focus on the RBNZ’s Monetary Policy Statement later this month. We believe the bank’s future guidance will change significantly, paving the way for easing in the second half of the year. Create your live VT Markets account and start trading now.

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