Reflecting on the week that was, it was a less exciting week than what could have been. The RBNZ hit the snooze button, and market traders went to sleep. The cash rate was kept unchanged at 3.25%, no surprise. It was the first pause since the cutting cycle commenced in August last year (see our full review here).

The key takeaway from the meeting though is that the RBNZ’s bias still leans towards further easing. We’re still on the trajectory for lower rates. As the RBNZ put it “If medium-term inflation pressures continue to ease as projected, the Committee expects to lower the Official Cash Rate further.”

From our perspective, and even the RBNZ’s, the risks to the medium-term inflation outlook remain tilted to the downside. The RBNZ reaffirmed that while inflation is expected to rise toward the top of its 1–3% target band over the current and coming quarter, it still sees inflation staying within the band and returning to around 2% by early 2026. We, meanwhile, remain a little more bearish and see risks that inflation undershoots 2% in the medium term.

So, given that monetary policy is set with a medium-term horizon, and medium-term inflation looks set to remain contained, it raises the question: why pause?

If it had been up to us, we would have cut last week. And we’d cut again in August. But for now, the RBNZ have decided to take a wait and see approach. Waiting for what? Well, “Some members emphasised that waiting would allow the Committee to assess whether weakness in the domestic economy persists, and how inflation and inflation expectations evolve.” So, the next few data releases will be carefully picked apart. Of note will be the Inflation release next Monday, along with labour market and inflation expectations data in August.

It’s not just the RBNZ taking a wait-and-see approach. The RBA surprised markets last week by keeping rates unchanged, defying expectations for a 25bps cut to 3.60%. In holding steady, the RBA cited a still-tight labour market. But much like the RBNZ, the RBA ultimately signalled it has time to wait and assess how inflation evolves, with US tariff developments.

Last week we got word that Trump’s 90-day pause would be extended to the 1st of August. At the same time, we saw a number of countries receive letters from the White House with new reciprocal tariff rates. For some countries, the newly prescribed rate comes in lower than their “liberation day” rate, though still largely elevated. While for others, the rate remains unchanged. But for Canada, Mexico, and the EU, tensions have re-escalated. Trump is now set to raise tariffs on Canada to 35%, while threatening hikes of up to 30% for both the EU and Mexico. He’s also made it clear that any retaliation will be met with even higher tariffs.

Still, as we’ve come to expect, nothing is set in stone. And once again we’re left waiting, now until August 1st.

Financial Markets

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

In rates, central banks took the wheel while tariff headlines faded to the background

“Last week in Kiwi rates it was all about the RBNZ with tariff headlines remaining in the background. The MPR was interpreted by the market as a dovish hold. Consequently, there was little reaction other than a brief sell off when the outside expectation of a cut was disappointed.

The RBNZ delivered a nuanced statement that acknowledged near term upside risk to headline inflation while reiterating their focus remains on the medium-term outlook. The alternative decision to cut 25bps was discussed in earnest. The statement has set up the August meeting for a cut but has put clear hurdles in place. In the short end the 3bps of cuts priced for July moved to August seeing 18bs remain priced and the terminal at around 2.90. Q2 CPI and labour market releases between next meeting will obviously be crucial.

RBA in contrast came out with a shock hold. One of the biggest surprises in the latest 20 years in terms of amount priced. The vote was a split decision with the RBA citing a low cost to wait for more data to confirm inflation is cooling.

Also of note in fixed income space was the first Kauri issuance since Feb 2024. With world bank issuing $600m 7 year. Looking ahead we have only second tier data on the slate this week with PSI and SPI of most interest.” Matthew Crowder, Balance Sheet Manager – Treasury.

In currencies, a holding pattern has landed

“With the RBNZ delivering their expected hold at the OCR review last week, there was little on that front to propel direction either up or down for the Kiwi dollar, and we hovered close to the 0.6000 level, with the break out to 0.6125 attempts of recent weeks clearly forgotten in the meantime. Market implied pricing currently has 38bps of further easing priced in, which indicates another 25bp cut, but then some uncertainty from there, but likely an additional -25bp at some point before Christmas. The implied terminal rate is sitting at 2.90% as at the end of last week. On the US dollar front, it has been holding fairly steady over the past week, with the US dollar index (.DXY) sitting around the 97.50/98.00 level. Noise around tariffs had a more muted response from market participants, with the Northern Hemisphere Summer period potentially in part to blame, with lower liquidity and a holiday vibe with traders checked out. The Fed’s FOMC minutes reaffirmed the message that there is too much uncertainty for them to deliver rate relief at this point, which is also what we took away from our own RBNZ. Joining this group of cautious Central Banks last week was the RBA, who wrong footed the market but remaining on hold at 3.85% on Tuesday. A 25bp cut had been 98% priced into the market, so it turned out to be the surprise of the week. We finally saw a little action in the NZDAUD cross, which broke out of its painted on 0.9230-0.9290 range, making a break to a low of 0.9170 as an immediate response to the RBA. As the week closed, we were looking to test the next downside level of 0.9120, which we may see in the week ahead, but otherwise we may trickle back up to 0.9170/0.9200. Given that both the RBA and RBNZ still have easing biases, it is effectively still status quo. The messaging from the RBA implied that it was very much just a breather, before they are likely to resume cuts. So in short, nothing to drive outside of the current rate differentials, which are pretty much in line. It may just be a question of timing.. The week ahead has little on the NZ Economic print front, but next week we have our next CPI print. After that we have our labour market data on the 6th of August, followed by inflation expectations on the 7th. In the meantime, it is back to global themes: tariffs and getting deals signed, and then we expect some more speculation on the new Federal Reserve Governor in 2026, and the current political pressure on J Powell, which could spice things up again. We also have a raft of inflation prints this week on the global headlines.” Mieneke Perniskie, Trader - Financial Markets.

Weekly Calendar

This week is all about inflation and price data. We'll get updates from the US, UK, Eurozone, and Japan. As well as our own monthly price data at home.

• In the US on Wednesday a slight acceleration is expected, with prices rising 0.3% over the month, nudging the annual headline rate up to 2.6% from 2.4%. Core inflation is also expected to tick up from 2.8% to 2.9%. Though it should be noted that most forecasters still don’t expect to see any visible impact from tariffs in this weeks release.
• Also on Wednesday, the UK’s annual headline inflation rate is expected to hold steady at 3.4% (still stubbornly above 3%), with core also unchanged at 3.5%. This would be broadly in line with what the Bank of England is anticipating. Some upward pressure from food prices is likely, though partially offset by softer services inflation.
• In contrast, the Eurozone’s finalised inflation data for June (outThursday) is expected to confirm inflation held at the ECB’s 2% target. A stronger euro and lower energy prices are helping to keep overall price pressures contained.
• And finally, Japan CPI on Friday is expected to see a slight deceleration Headline inflation is forecast to ease from 3.5% to 3.3%. Core inflation, however, is likely to remain steady at 3.3% still suggesting underlying price pressures remain relatively sticky.

Domestically, we’ll be watching for June’s price data on Thursday. Before that, this morning brings the services PSI and electronic card spending figures. Much like the PMI, the services index is likely to remain in contraction after last month’s sharp drop to 44.0. Meanwhile, card spending is expected to stay subdued, with the elevated cost of living continuing to weigh on household demand.

See our Weekly Calendar for more.