Episode four is all about the Chinese economy and its far-reaching influence. China is our largest trading partner, and has been since 2017. As of the June 2024 quarter, our two-way trade with China stands at $9.5bn. China is our top export destination, and our second largest source of imports. The Chinese economy however has been floundering for too long. The property market crisis, which has weighed on domestic household spending, has seen the PBoC deliver savage interest rate cuts and billions in funds to restore confidence and activity in both property and share markets. Alongside rate cuts from the RBNZ, next year should be a story of growth for both our and the Chinese economy.

But if you were to ask us what scares us most, we’d say geopolitics in the Pacific is a big worry. We could find ourselves stuck between a rock (US) and a hard place (China).

So, what should be done? Diversify. NZ needs to seek growth elsewhere. India is a big part of the solution. India will be the fastest growing developing economy for many years… It’s great to hear we are pursuing better trade agreements with India. We have been for well over a decade. The rest of Asia, and eventually Africa, will also be a source of growth.

Later in the episode, we chat to Hamish Wilkinson, Senior FX Dealer in the Financial Markets team. We recently published our FX tactical which includes our quarterly forecasts of key Kiwi crosses. With the exception of the RBA and Bank of Japan, most central banks around the world are now bringing down policy settings from very restrictive levels. But it is the speed and magnitude of expected easing (rate cuts) that underpins our exchange rate forecasts. The likes of the ECB and BoE are taking a slow and steady approach, nervous about an inflation flare-up. Across the pond, the US Fed began with a with a big bang 50bps cut. But markets are left wondering if the Fed has more cuts like that up its sleeve. Unlike its peers, we think the RBNZ will need to deliver more. And sooner the better. The Kiwi economy is in a far weaker state. Fundamentals are pointing to a weaker NZD against the Greenback, Euro and Sterling. For KiwiAussie, downside potential is especially strong. Because the RBA still has its hawkish talons on display. We also see broad downside to the KiwiYen cross, as interest rate differentials continue to narrow. Growing evidence of a virtuous wage-price spiral in Japan has prompted a pivot in policy. The BoJ is going one way (rate hikes) as its peers go the other (rate cuts).

Stay tuned: In the next episode, we discuss the lift in business confidence since the RBNZ’s policy pivot. We’ll also chat to Elliot Smith, Kiwibank’s Chief Customer Officer – Business – about how business lending has fared over the last few turbulent years.