Weekly market wrap up

The RBNZ lifted the OCR by 25 basis points to 2.75% this week, continuing its gradual withdrawal of monetary stimulus. With annual inflation at 4.1%, largely reflecting higher fuel prices arising from the Middle East conflict, the increase itself came as little surprise. The more interesting part was what the Bank said about where rates might go next. The RBNZ signalled that further increases may be needed, with its central projection taking the quarterly average OCR to around 3.2% by late 2027. Markets had been expecting a somewhat steeper path, and some of that pricing was unwound following the Statement. At the same time, spare capacity remains evident, particularly in the labour market, leaving the Bank to balance elevated inflation against an economic recovery that remains uneven. 

New Zealand’s residential construction pipeline continues to look healthier than it did a year ago. There were 40,908 new homes consented in the year to July, up 21% from the previous year and the highest annual total since 2023. More recent data has been softer, with seasonally adjusted consents falling 4.3% in July following a 3.7% decline in June. Some perspective is useful, however. The middle of the year has historically been a quieter time for consenting activity, when shorter days, wetter weather and winter distractions tend to make building plans a little less urgent. Against that backdrop, the stronger annual picture still points to a healthier pipeline after several difficult years for the sector. As those consents gradually turn into projects, they should provide some support for residential construction. 

Not all dairy gains were created equal this week. The latest Global Dairy Trade auction produced a 0.9% lift in the headline index, but almost all of the excitement sat in one corner of the market. Skim milk powder prices surged 5.3%, while whole milk powder edged 0.1% lower. At US$3,695 per metric tonne, SMP moved above WMP for the first time since mid-2022 - an impressive showing for a product Ron Swanson, as portrayed by Nick Offerman in Parks and Recreation, once described as “water that’s lying about being milk.” Elsewhere, butter and anhydrous milk fat also softened, reinforcing that this was hardly a broad-based rally. For New Zealand, where WMP typically commands much of the attention given its importance to dairy export returns, the result is a useful reminder that the headline GDT index does not always tell the whole story. 

Pacific leaders have gathered in Palau this week for the 55th Pacific Islands Forum, the region’s main annual meeting for addressing shared challenges. This year’s theme, “Building Economies: Life. Action. Unity”, puts economic resilience on the agenda alongside climate change, fisheries and ocean governance. For New Zealand, the Forum remains important given our close links with the Pacific through trade, tourism, labour mobility and longstanding regional ties. It also gives leaders a chance to discuss the practical challenge of supporting growth while managing climate and infrastructure pressures, particularly for smaller economies. There may not be many meetings where fisheries policy and economic development sit comfortably side by side, but in the Pacific they often go hand in hand.