Economic Update
Stay Informed on Market Trends
FINANCIAL MARKET UPDATE: JUNE 2025
“Things are never as bad as you think, but seldom as good as you hope.”
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Q2 2025 will be known as the ‘war’ quarter, whether we’re discussing the tariff war, the rapid escalation and de-escalation in the Middle East, or the continuing war in Ukraine. This underpinned financial market volatility, with violent swings in FX and interest rate markets.
Beyond the conflict, the major central banks, the World Bank, and the OECD have all been unanimous in expressing concerns about global economic growth prospects, and the broader international outlook, due to the substantial rise in trade barriers and the pervasive effects of the uncertain global policy environment. Inflation risks also persist from potential supply chain disruptions and protectionist trade policies.
Amid the increase in geo-political tensions, the US Federal Reserve continued to opt for a cautious approach and at its June meeting left its Fed Funds Rate range unchanged at 4.25 to 4.50%. The European Central Bank cut its key interest rates by 25bps, taking its deposit rate to 2.00%, the Bank of Japan held its benchmark interest rate unchanged at 0.50%, while the Reserve Bank of Australia cut its cash rate by 25bps to 3.85% at its May meeting with the statement highlighting, “The risks to inflation have become more balanced” as it hinted at further rate cuts.
The Reserve Bank of New Zealand (“RBNZ”) also cut its cash rate, but the outlook was more balance with the statement noting that while inflation expectations have risen, core inflation is declining and there is spare productive capacity within the economy. It is noticeable that the comments from the RBNZ highlighted a degree of optimism with the full impact of the RBNZ’s 2.25% of interest rate cuts so far still to fully flow through to the economy in late 2025, given the 12–18-month transmission mechanism, while cashflows from the export sector should also start to benefit the wider economy in due course. The central bank believes these factors should provide the groundwork for a NZ recovery in H2 2025 and into 2026, but with commodity prices easing back from their recent highs, and the currency up by 10% against the US dollar year-to-date, there are still plenty of domestic challenges.
NZD/USD Chart:
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We have long been advocates that Q1 2025 would be about USD strength, and that Q2 and Q3 would be about the NZD recovery, and this continues to play out despite the recent escalation in Middle Eastern tensions. While volatility spiked, it wasn’t significant in historical terms, and despite the initial move, the USD rally soon lost momentum. Ultimately, the NZD/USD merely remained within its recent range, with the potential to now appreciate further.
New Zealand Interest Rate Curve:
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The RBNZ cut the cash rate by 25bps to 3.25% at its May meeting. The statement highlighted that only two options were discussed, to leave the OCR unchanged at 3.50% or to cut it by 25bps, highlighting that a 50bps cut was not discussed. As RBNZ Governor, Christian Hawkesby, stated the following day, “The main message we were looking to get to markets was that, when we next meet in July, a further cut in the OCR is not a done deal. We’re more in a phase where we are taking considered steps, being data dependent,” implying that the central bank believes it is at, or near, the end of its current cutting cycle.
As proactive Treasury specialists, we believe it is important that companies actively manage funding arrangements and cross-border flows in order to protect against adverse movements and unnecessary risk and to ensure a sustainable business. This includes, but is not limited to:
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Reviewing your treasury policy to ensure it is fit for purpose.
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Making sure the policy is covering your financial exposures. It is not just FX and interest rates, but funding, working capital, term-debt, cash, liquidity, and commodities.
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Maintaining policy compliance. This is what protects you and the company.
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Reviewing your transactional banking arrangements, cashflow protection, receivables management, and forecasting.
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Undertaking an ESG Healthcheck to consider the key sustainability risks that your business could be facing now and into the future.
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If you have a sustainability strategy, tracking progress towards achieving targets, and considering linking it to your financing.
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Please refer questions and queries to:
Dwayne Jones or Dean Sharrar
+64 21 357 528 +64 21 608 336
d.jones@bancorptreasury.com d.sharrar@bancorptreasury.com
Disclaimer
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IMPORTANT NOTICE
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Statements and opinions contained in this report are given in good faith, but in its presentation, Bancorp has relied on primary sources for the information's accuracy and completeness. Bancorp does not imply, and it should not be construed, that it warrants the validity of the information. Moreover, our investigations have not been designed to verify the accuracy or reliability of any information supplied to us.
It should be clearly understood that any financial projections given are illustrative only. The projections should not be taken as a promise or guarantee on the part of Bancorp.
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This document has been prepared by Bancorp Treasury Services Limited (“BTSL”). Whilst all reasonable care has been taken to ensure the facts stated are accurate and the opinions given are fair and reasonable, neither BTSL nor any of its directors, officers or employees shall in any way be responsible for the contents. No liability is assumed by BTSL, its directors, officers or employees for action taken or not taken on the basis of this document.