All quiet on the investment front. Firms wait for an economic clearing

Published on 01 September 2025

It was a quiet end to August. But we're gearing up for a busy September.

  • US political dramas continue to hang above financial markets. The threat of political interference in US monetary policy has steepened the yield curve. While somewhat puzzling, currency markets appear relatively unfazed.
  • We recently surveyed our business bankers across the country to gauge what they were seeing around the uptake of the Government’s Investment Boost initiative. There have been some early signs of engagement. But overall, most businesses remain cautious and seem to be waiting for an improvement in economic conditions before committing to new investment.
  • Our Charts of the Week looks at the surprising strength in Kiwi retail sales. Volumes lifted a strong 0.5% over the June quarter, with levels now sitting 2.3% above last year. That’s great news. However, beneath the headline reveals that growth is lacking broad-based strength.

Political drama overshadowed economic data in financial markets last week as U.S. President Donald Trump channelled his former Apprentice persona again. This time making a dramatic move to fire Federal Reserve Governor Lisa Cook over allegations of mortgage fraud. The act quickly sparked market concerns over Trump’s ongoing challenge to the Fed’s independence. The U.S. dollar initially faced some downward pressure off the back of the news, but regained footing relatively quickly. Meanwhile, Governor Cook has responded by filing a federal lawsuit, calling the dismissal attempt unlawful and politically motivated. Ultimately, the key risk for markets from here lies in whether this rhetoric of political undermining of the Fed’s independence continues. Because such a narrative could see longer-dated U.S. rates push even higher.

Turning our focus to what we much prefer – concrete data. The Aussie monthly inflation print last week certainly caught our attention. Inflation came in well above expectations at 2.8%yoy in July – going from the bottom of the RBA’s band to close to the top. The surge was mostly off the back of a 13% increase in electricity prices due to the timing of government rebates. What was a bit of a concern was the jump in the trimmed mean measure to 2.7%. Signs that underlying inflation is pick up saw traders pare back expectations for a rate cut from the RBA this month.

Domestically, we had a relatively quiet week on the data front, so we spent some time reflecting on the Government’s ‘Investment Boost’ scheme that was announced back at the Budget in May.

As the cornerstone of the “Growth” Budget, Investment Boost serves as a tax incentive whereby businesses can deduct 20% of a new asset’s value from that’s years taxable income, on top of normal depreciation. The goal? To encourage investment in productive assets, like machines, tools, and equipment… and accelerate growth. The incentive helps Kiwi businesses to lead the growth in the economy. They know, better than most, where to invest.

Boosting investment in productive assets is something we certainly support, but it will take time to work. The timing of the initiative landed when businesses were, and still are, grappling with uncertainty, a lack of confidence, and weak demand. Businesses have been more concerned with simply surviving rather than looking to expand and invest. Businesses ‘surviving’ rather than ‘thriving’ has muted the uptake of the scheme, at least in the near term. We need a more convincing period of sustained demand in the economy. We’re closer to that now than we were in May, especially with the RBNZ signalling a shift toward stimulatory settings. Conditions are set to improve. But the here and now still poses many challenges for Kiwi businesses, with many unable or unwilling to invest.

Quantitative data on both the uptake and impact of the scheme remains limited. But we know that some of the anecdotal insights we get from Kiwi businesses paint a telling picture, well ahead of any official data.

So, we asked our business bankers across the country what they were seeing on the ground.

In response to whether clients were considering taking up the Governments “Investment Boost”, two thirds of the survey responses were no.

It’s what we expected might be the case. Businesses are still holding out for calmer waters, and a brighter outlook. And for those who did report clients taking up the scheme, it seems that most businesses using the incentive were either already planning to invest in capex or were catching up on deferred investment from the past couple of years.

Check out the full report for some of the standout comments from our business bankers that sum up the general sentiment and uptake of the initiative so far

Financial Markets

The comments below were provided by Kiwibank traders. Trader comments may not reflect the view of the research team.

In rates, the bull steepening continues.

“Kiwi rates were lower and steeper in what was a relatively quiet week. The short end consolidated lower as the market slowly prices in more of the cuts signalled for this year. The 2-year swap rate ended the week 7bps lower, but the 10 year was down only 4bps, the 2s10s curve is now over 100bps which is the steepest since April (post Liberation Day). The blatant undermining of Fed independence by the Trump administration has put upward pressure on long end Treasury yields but has yet to seriously spook the market.

Domestically, there was a mild improvement to the data with stronger than expected retail sales and an increase in filled jobs. Though consumer confidence weakened to a 10-month low and businesses reported lower actual and expected activity. ASB issued a record $1.2b of 5-year into a market in short supply of product.

This week is shaping up to be another quiet week domestically with next big data release not until GDP on 18 September.” Matthew Crowder, Balance Sheet Manager – Treasury.

In currencies, we are in a holding pattern until the Fed’s September meeting.

“After having a solid move lower following the RBNZ’s cut, the Kiwi dollar has found some firm footing at the 0.5820/50 support level, and is now again in a bit of a holding pattern. Last week was a light one on the data front. The market feels like it is waiting to see what happens with the Federal Reserve’s FOMC meeting this month, on the 17th. Current market pricing is an 88% chance of a 25bp cut from the Fed, after some further confidence was gained from Jay Powell’s remarks at the Jackson Hole summit. However, there is still evidence of division amongst Fed officials in terms of their confidence on the timing of cuts, with a lot of wariness in regards to inflation. Cuts from the Fed may boost the Kiwi dollar back into the 0.5900+ levels. But first there are a couple more US data points, the first being the non-farm payrolls number this week. Expectations are for a +75k increase, but after the dismal number at the last print, this week’s will be closely watched. On balance, there is potentially some upside risks for the Greenback, which may put a dampener on any sustained breaks above 0.5900 for the Kiwi dollar. From a technical perspective, the Kiwi has indeed found footing around 0.5820–0.5850, bolstered by the 200-day moving average at 0.5833 and the 50% Fibonacci retracement at 0.5803 (50% retracement from April low of 0.5486 / July high of 0.6120). These technical levels should act as a solid floor for any further downside. On the NZDAUD front, the cross failed to sustain a break below the 0.9000 level, despite a couple of attempts. For now this may be off the table. We have the Aussie GDP print out this week which may provide an opportunity. Otherwise currency markets seem to be waiting on the Fed.” Mieneke Perniskie – Senior Dealer, Financial Markets.

Weekly Calendar

  • Across the ditch, Aussie GDP is due out and is expected to show the economy grew at a moderate pace over the June quarter. Market consensus is for a 0.6% lift, following a weak Q1 print of 0.2%. Household consumption and construction appear to have firmed up after a rather soft start to the year. The key measure to watch is per capita output, given the contraction that printed.
  • The main data release for financial market this week will be US non-farm payrolls. Market consensus expects a further 75k jobs were added over August, not too different from the 73k increase in July. The unemployment rate - as measured in the Household Labour Force Survey - is expected to remain at 4.2%, capped by the continued fall in the participation rate. This report will have some bearing on the Fed's decision later this month. But the August CPI print (out Sep 11) will be more influential on whether the Fed will resume its easing cycle.
  • Across the pond, the August flash CPI print for the Euro-area is due out. Due mostly to base effects, the headline rate is expected to come in a tad higher, from 2% to 2.1%. Most ECB officials have deemed inflation to be "in a good place" and the economy continues to prove resilient. The ECB is likely to stay on hold this month.

See our Weekly Calendar for more.