The end of 2025 is fast approaching. And just in time for 2026, it looks like things are turning. The September quarter looks to have been a strong one for the Kiwi economy. That was always the expectation given the very weak starting point. Although we’d expect the June 0.9% decline in activity to be revised higher. Nonetheless, recent dataflow has been pointing to strong improvement in economic output over the third quarter of this year.

The most recent release of good news came from StatsNZ’s building activity data. The volume of building activity was up 1.5% over the quarter, well above the 0.2% lift expected by markets. Driving growth was the 2.8% uptick in residential volumes. Meanwhile non-residential building activity, down 1.3% over the quarter, continues in a downtrend with September marking the fifth consecutive quarter of declines for the sector.

Altogether, building activity appears to have found a floor. And looking at building consents, a leading indicator for activity, a pickup in construction appears imminent. Consents remain around 25% below from their 2022 highs, but have been on a general upswing since the middle of the year. The fall in interest rates over the year as well as the anticipation of a recovery in the housing market likely underpins the lift.

The strong building data comes hot on the heels of the solid retail sales print for the September quarter. Check out our review of it here if you missed it. But also, be sure to check out our COTW for some fresh Kiwibank data on spending over Black Friday. And by Black Friday, we really mean the whole month of November with sales kicking off well before the official calendar date.

It’s great to see the interest rate sensitive sectors of the economy finally responding. Overall, things are looking brighter as we wrap up the year and head into 2026. And it’s thanks to the steady decline in interest rates since last year. The medicine of lower interest rates is working.

But maybe the arrival of the Swedes helps too…

Talk about coincidences, Swedish furniture giant IKEA opened in Aotearoa the same week that Swedish banker and economist Dr Anna Breman steps into the role of Governor of the RBNZ.

Appearing in front of the Finance and Expenditure Committee (FEC) last Tuesday, Dr. Breman’s first remarks as Governor underscored the RBNZ’s commitment to staying laser-focused on its core mandate. That is, keeping inflation low and stable. Additionally, Governor Breman re-emphasized working towards improving the transparency and openness of the RBNZ. One potential step in that direction could be introducing voting attribution for monetary policy decisions. When asked about this during the FEC meeting, Breman noted it was something she’d like to discuss with the other Monetary Policy Committee members in time… so, we’ll see if that plays out. Nevertheless, whatever the path forward, greater transparency is something we look forward to. And with that we extend a warm welcome to Dr Breman to her role as Governor, and of course to Aotearoa.

Financial Markets

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

In rates, the market has settled on a new (higher) range

“The Kiwi rates market, still reeling from RBNZ’s emphatic neutral bias combined with a classic liquidity vacuum, saw rates gap higher again on Monday. Finally finding a clearing level in 2-year around the 2.90% level with a new range established of around 2.80-2.90%.

Kiwi still running its own race in the front end was however susceptible to offshore moves in the long end of the curve. This saw the 2s10s curve whipsaw across a 20bps range up to a high around 120bps then back to 110bps at the end of the week.

Aussie, not to be outdone, had their own sell off of comparable magnitude last week as GDP only just missed estimates and talk of hikes gained momentum. This kept upward pressure on our own market. RBA meeting this week will give further insight into their view on prospect of hikes in 2026.

Domestically we have HYEFU and the remaining GDP partials with GDP following week as a capstone to 2025. Though expect that nobody will be caught off guard by a strong print.” Matthew Crowder, Balance Sheet Manager – Treasury.

In currencies, the Fed will be the main direction driver

“The Kiwi dollar has maintained recent gains following the RBNZ’s final OCR cut for the year, which may also mark the end of the current easing cycle. The currency strengthened last week from 0.5735 to a high of 0.5780, supported by a softer US dollar ahead of this week’s FOMC meeting. The DXY eased from 99.40 to 98.80, and further downside is possible if the Fed delivers a 25bp cut. The tone of the Fed’s statement will be key for the USD outlook. Current market pricing implies a 90–95% probability of a cut, with attention shifting to the trajectory of rates through 2026. Mixed signals have emerged since the previous FOMC, as some officials voiced caution on aggressive easing amid limited data following the US government shutdown. With fresh data now available and private labour indicators pointing to continued weakness, confidence in Fed cuts has grown. Looking ahead, Trump’s upcoming Fed Chair pick in early 2026 could reinforce expectations for lower short-end US rates. The Kiwi appears poised to test 0.5800+ this week barring surprises.

On NZD/AUD, the Kiwi has retraced some gains, slipping from 0.8740 to a brief low of 0.8696 on Friday. The softer-than-expected Aussie Q3 GDP print had only a fleeting impact, with the RBA likely to maintain its 3.60% policy rate at tomorrow’s meeting. Market pricing suggests only a slim chance of a final cut in 2026. Thursday’s Australian employment data may prove more influential for the cross than the RBA decision.” Mieneke Perniskie – Senior Dealer, Financial Markets.

Weekly Calendar

Here at home, we get a slew of high-frequency data. Net migration is due on Wednesday, and we'll be looking for signs that we're near the trough in the current cycle. Manufacturing data for the September quarter may see a lift in activity as business confidence has strengthened. And card spending data for the month of November is due out on Thursday. Judging by Kiwibank transactions, there appears to be early signs of a pick up in discretionary spending.

• This week belongs to the US Federal Reserve. After topsy-turvy market pricing over the last few weeks, expectations have landed on a 25bps cut to the federal funds rate at the December meeting. The focus now is on the Fed's tone and the vote. The FOMC may lean dovish, in aggregate, given weak outcomes from the Beige book and private payrolls. Signs of a reacceleration in inflation also are minimal. The Fed's new dot plot will also be of interest, which currently signals just one more 25bps rate cut in 2026. Should the dot plot remain unchanged, the move would likely be taken as hawkish by financial markets.
• Across the Tasman, the RBA is widely expected to stay on hold with the cash rate remaining at 3.6%. We will also likely see the RBA deliver a more hawkish message as inflation has accelerated to near-4%. A still-tight labour market is also adding to growing conviction that the RBA may be at the end of its easing cycle - after 75bps of cuts. Current market pricing implies that the next move in the cash rate is more likely up than down. The RBA's tone on Tuesday will be key.
• Here at home, we get a slew of high-frequency data. Net migration is due on Wednesday, and we'll be looking for signs that we're near the trough in the current cycle. Manufacturing data for the September quarter may see a lift in activity as business confidence has strengthened. And card spending dta for the month of November is due out on Thursday. Judging by Kiwibank transactions, there appears to be early signs of a pick up in discretionary spending.

See our "Weekly Calendar" for more