Signals of Peak Inflation Strengthen, End of Rate Cut Cycle in Sight
With the release of the latest inflation data, expectations for the policy direction of the Reserve Bank of New Zealand (RBNZ) are becoming clearer. In the third quarter, New Zealand's Consumer Price Index (CPI) rose 3% year on year, slightly above previous market forecasts but still within the central bank's target range of 1% to 3%.
Analysts point out that the inflation rise is more driven by property taxes, electricity price hikes, and some imported cost pressures, rather than continuous core price pressure. This suggests that New Zealand inflation is near its peak, with a low likelihood of climbing again in the short term.
Several institutions anticipate that the RBNZ will cut interest rates by another 25 basis points at the policy meeting on November 26 to consolidate the economic recovery momentum. However, the market generally believes this will be the "last cut" in the current easing cycle. After the rate cut, the central bank is expected to enter a policy evaluation phase, focusing on the effects of monetary easing on household spending, business investment, and the real estate market.
Signs of Economic Recovery as Loans and Consumption Rebound
Recent data shows that New Zealand's economy is gradually emerging from the doldrums. The activity index for September recorded the strongest growth since the end of 2022, leading market expectations for third-quarter GDP to rise by about 0.5% quarter-on-quarter.
The consumer side also sends positive signals. Influenced by interest rate cuts, mortgage demand has risen significantly, with loan totals surging 25% year-on-year. Notably, first-time homebuyers show unprecedented enthusiasm, with more than half purchasing with a high loan-to-value ratio (LVR); the rising proportion of high debt-to-income (DTI) investors also reflects significantly improved market sentiment.
However, some economists caution that if the rapid heating of the real estate market continues, it could pose potential risks to financial stability. The central bank's future balance between easing and stability will become a key focus of market attention.
Positive Market Reaction Gives Kiwi Dollar a Breather
On the currency market, the Kiwi (NZD/USD) has rebounded nearly 3% from September lows, with investor sentiment turning optimistic. Analysts believe that with inflationary pressures easing and the rate cut cycle nearing its end, the risk of Kiwi depreciation has significantly diminished.
HSBC forex strategist stated: "The market is beginning to reprice RBNZ's terminal rates, and the Kiwi may remain in the 0.61 to 0.63 range in the short term, with potential for further breakthroughs if employment data is strong."
Additionally, the latest report from ANZ indicates that the recovery of New Zealand's export sector is providing additional support for the Kiwi, particularly through the rebound in dairy and timber export prices, creating conditions for current account improvement.
Employment Data and Confidence Index as Key Next Steps
Looking ahead, investors will focus on the upcoming labor market data and confidence indicators. The market generally expects slight improvement in New Zealand's third-quarter employment growth, with the unemployment rate likely maintaining below 4%. If employment recovery is confirmed, it will further reinforce the judgment that the "end of rate cuts is near."
Meanwhile, the performance of the ANZ Business Confidence Index and Consumer Confidence Index will also test the effectiveness of recent easing policies. If confidence continues to rise, it suggests that monetary stimulus is translating into real economic vitality, thereby providing new upward momentum for the Kiwi.
Is Kiwi's Comeback on the Way?
Overall, New Zealand's main economic contradictions are gradually easing: inflation is peaking, growth is warming, and confidence is being restored. Although there are still short-term external risks (such as global trade slowdowns and energy price fluctuations), the overall trend points towards a mild recovery.
As the rate cut cycle nears its end, the market bets that the Kiwi could regain its upward trend by the end of the year. Analysts believe that if subsequent data confirms the recovery momentum, New Zealand may become one of the first economies in the Asia-Pacific region to "end the easing cycle."
