Last week, the Quarterly Survey of Business Opinion (QSBO) for the September Quarter revealed a divergent view.

Businesses continued their struggle over the September quarter. Business activity was down, and domestic demand was a major constraint. At the same time, business owners are more optimistic… more than they have been since 2014. It is a striking contrast given the ‘meh’ September quarter that has been.

Cost and price pressures eased, which would likely have provided some relief. Businesses expressed strong intentions to hire and invest in the coming months. Reportedly greater difficulty finding skilled and unskilled workers suggests that labour demand is growing. With a robust hiring outlook ahead, it seems that spare capacity in the labour market is gradually being chipped away. Good news for an economy with a 5.6% unemployment rate.

For businesses to be feeling the most optimistic they have in 12 years suggests that they’re holding out for a swift and recovery. Such a recovery is possible. Parts of the Kiwi economy continue to perform very well. And the job market may soon improve.

At the risk of throwing a wet towel over a cheerful headline, risks remain to the downside. The housing market continues to drag us down. Kiwi families are facing renewed budget pressures due to record-high prices at the pump. Rate hikes are still on the cards. And things aren’t getting any better, or less scary, overseas. For more analysis on the QSBO, check out our review here.

The September quarter was only marginally better than June’s. And we eagerly anticipate the post-election move into 2027, amidst a likely strong summer for tourism. We anticipate a more material, demand driven recovery in the December quarter, and a further improvement over 2027. New data out this week will add more colour to that view.

Looking offshore, the US saw a 13.7% increase in its monthly trade deficit in August. Imports increased by 4.3%, driven by capital goods such as semiconductors. These imports are part of America’s booming AI industry. Yet with only 1.4% export growth, the monthly trade deficit widened to US$105.6bn (NZ$188bn).

Because the US dollar is the world’s reserve currency, 60% of global trade is done with US dollars and US financial markets are the most liquid. Foreign demand for US assets is persistently strong. This demand supports the US dollar, making it more expensive for foreigners to buy American exports. Capital inflows to the US remain strong enough to allow the US to sustain deficits more easily than most countries.

Recently released minutes from the September Fed meeting revealed a more mildly hawkish bias, with divergent views about the direction of monetary policy from here. Investor optimism about a less hawkish Fed bias, and the upcoming earnings season, led to US stocks reaching record highs.

Financial Markets

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

In Markets – Passing the volatility baton

Offshore markets continued to set the tone. US bond markets showed some signs of tempering recent volatility. The baton of volatility shifted to the Eurozone and primarily French markets as concern over large budget deficits and political gridlock saw French debt pressured higher. Elsewhere the Gulf conflict continued with a further escalation by Houthi militants on targets in Saudi Arabia and reports of tankers hitting mines in the Strait of Hormuz. Late in the week AI jitters saw equity markets dip with some broader concerns over whether the AI infrastructure spend could be justified by the revenues and a perceived lift in potential regulatory risk for the sector. Australian and New Zealand markets continued to apply increasing consideration to domestic factors, particularly at the front of the curve with implied cash rate paths have been pared back recently. For the week our market looked to price year-end OCR at around 3.08% (-1bp week on week), with year ahead at 3.83% (unchanged), further along the curve 2-year IRS finished at 4.02% (unchanged), 5-year at 4.39% (-2bp) and 10-year at 4.76% (-1bp).

US bond markets started to show some signs of tempering recent volatility, though not before seeing yields on longer issues nudge multi-decade highs intra-day before rallying back into the close. Events on the week saw some solid Treasury auctions with lifts in cover and increased foreign buying noted. Meanwhile Fed officials continued to highlight current elevated inflation but tended to highlight expectations overall remain anchored and perhaps indicating that that there was no rush on rate rises. The release of the minutes from the last meeting were viewed as hawkish, though not additionally so from current. Inter-day volatility seeming to have been pared back with pricing continuing to stabilise in the short-end. The probability of an October Fed hike further declined, with this now seen below 20%. Year-ahead pricing (August) was also scaled back by around 5bp to around 4.65% or 77bp above the current effective rate. The lower path provided some support to the front of the Treasury curve with a small bull steepening the result as 2-year notes looked to settle around 3bp lower at 4.75% on our Friday to Friday close.

Australian and NZ rates continued to pare back some of the recent internationally inspired volatility. Stabilising short-end cash path pricing again played a role, providing an anchor of sorts to the front of the swaps curve with the 2-year IRS and some of the shorter dated forward-starts potentially forming some interesting technical patterns as a consequence. Data was a little thin out of Australia with a read on consumer confidence falling after the RBA hike, while here we had the Quarterly Survey of Business Opinion (QSBO) released. The QSBO provided a bit for everyone with the headline showing a strong lift on improved outlooks. Near-term there were indications of a softer Q3 as a possibility, while the prices and costs elements showed a reduction in the overall balance of firms noting these. This data would have appeared to flow through to the RBNZ’s GDPNow dataset with the surveys component detracting from both Q3 and Q4 estimations for GDP, with the predictor model for Q3 declining to 0.4% from 0.6%, and for Q4 to 0.1% from 0.3% the week prior.

All up, ahead of the data due this week, which includes potentially market moving prints of US CPI, Australian employment, and locally PMI and the SPI ahead of the CPI the next week, the QSBO release leaves the market in an interesting position, perhaps with a couple of schools of thought. Does the firm QSBO outlook provide the opportunity for the RBNZ to bring forward their MPS indicated tightening cycle to October or does the consequent likely weaker Q3 growth and reducing prices elements support their last MPS outlook with things developing broadly in-line, i.e., a December move. As indicated last week, we also need to consider the changing composition of the MPC and the to date, cautious approach by the RBNZ to the tightening cycle. This probably sees pricing around 50:50 for October likely fair as a result, while further out, our curve continues to trade near 3.90% as a terminal OCR rate. With the priced tightening cycle remaining higher than that of many of our peers, this likely sees the front of the swaps curve remain in focus for investors and payers alike who may be content to play the broader ranges. Graham Hughes – Trader, Financial Markets

In FX – the Kiwi continues trading in a tight range

The Kiwi started the week at 0.5601 against the USD, sitting near multi-month lows after testing support around its November 2025 levels. A brief push higher saw NZD/USD reach 0.5623 on Tuesday before renewed USD strength weighed on the pair through mid-week. Safe-haven demand for the greenback intensified as tensions in the Strait of Hormuz escalated, while ongoing concerns around European fiscal stability further supported the USD as the EUR was under pressure. NZD/USD recovered modestly into Friday's close, ending the week at 0.5614 and fractionally higher overall. The Bloomberg Dollar Spot Index notched a fourth consecutive weekly gain, its longest winning streak since January 2025.

NZD/AUD remained rangebound throughout the week, trading between 0.8033 and 0.8056 as both antipodean currencies faced similar external headwinds. Rising US Treasury yields and broader USD strength kept pressure on the AUD, helping the cross edge slightly higher. Sentiment towards the NZD was supported by an increased risk premium on Europe and the potential for further RBNZ tightening. NZD/AUD finished the week at 0.8041, around 10 pips above Monday's open.

For the week ahead, we expect that the Kiwi will continue to be driven by offshore moves. Markets are in a waiting game ahead of a heavy run of inflation and central bank events through late October and early November. While rates could remain volatile in the near term, the view remains that markets have become too aggressive relative to both the RBNZ and Kiwibank Economics outlook. With this in mind, there is little in the short term to provide stronger support for the Kiwi dollar. This week there are a few key global data releases, including US CPI, Australian labour-market data, and the RBA minutes. Mieneke Perniskie – Senior Dealer, Financial Markets.

The Week's Key Events

• Lots of data out this week! In New Zealand, there’s net migration and travel numbers for the month of August. And for the month of September we’ll get electronic card transactions, selected price indexes, and overseas merchandise trade.
• The US will get inflation data alongside retail sales and producer price index data.
• In Aussie, business confidence and labour market data will be key datapoints ahead of the RBA’s next decision in early November.
• Elsewhere offshore, UK GDP, European inflation, and Chinese trade data will also be of interest.