New Zealand's Interest Rates in Neutral Zone; Future Moves Dependent on Economic Data, Says Central Bank Official

Economic

Summary:

New Zealand's interest rates are currently within the 2.5%-3.5% neutral band, with the Reserve Bank of New Zealand indicating that future rate decisions will depend on economic data

New Zealand Central Bank's Rate Strategy in Neutral Zone

New Zealand’s interest rates are now positioned within the neutral range of 2.5%-3.5%, following recent rate cuts, with the Reserve Bank of New Zealand (RBNZ) signaling that future moves will be highly data-dependent. Assistant Governor Karen Silk emphasized that past monetary policy easing has not fully filtered through to the economy yet, and as such, the RBNZ is closely monitoring economic developments before making any further adjustments to interest rates.

The RBNZ made a 25 basis point rate cut to 3.25% on Wednesday, continuing a series of reductions that have cumulatively lowered rates by 225 basis points since August. While Silk acknowledged that additional rate cuts are possible, she emphasized that the current neutral rate range suggests no immediate need for further action unless the data points to such a need.

Economic Recovery Amid Trade and Global Uncertainties

Silk also discussed how New Zealand's economy, despite global trade risks and uncertainties, is expected to recover gradually due to the impact of past monetary easing. While trade risks, especially those arising from geopolitical tensions and U.S. tariffs, remain significant, the strong commodity prices are supporting New Zealand’s export sector, helping cushion the economy against external shocks.

The RBNZ’s policy trajectory, including the most recent rate cuts, is designed to stabilize the economy, with Silk noting that decisions about future rate moves will hinge on how economic data evolves in response to ongoing uncertainties. Silk also highlighted that global central banks, including New Zealand’s, cannot react impulsively to short-term developments, such as the latest tariff-related rulings from the U.S., as the long-term impact of such actions remains unclear.

Impact of Past Tightening and Current Economic Conditions

New Zealand had been one of the first global central banks to begin withdrawing pandemic-era stimulus, raising rates aggressively by 525 basis points between October 2021 and September 2023. While this tightening was necessary to curb inflation, it significantly dampened demand and tipped the economy into a recession last year. Though New Zealand is now emerging from the downturn, growth remains sluggish, with weak demand continuing to constrain economic activity.

In addition, a slowdown in the global economy and tight fiscal policies by the government further impede New Zealand’s recovery prospects. The government’s cautious fiscal stance, while designed to manage public finances responsibly, is adding another layer of complexity to the economic outlook, limiting the scope for robust domestic growth.

The Reserve Bank of New Zealand's cautious approach to interest rate adjustments reflects the ongoing balancing act between stimulating the economy and managing global uncertainties. With rates currently in a neutral range and a focus on data-driven decisions, the RBNZ will likely hold off on further cuts unless there is clear evidence that additional support is needed for economic recovery. As global conditions evolve, the central bank will continue to assess whether past policy measures are sufficient to foster sustainable growth or if further intervention is required.

Source: Reuters

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Economic

China–U.S. Trade War

Manufacturing Contraction Reflects Ongoing Trade Struggles

China’s factory activity is expected to have contracted for the second straight month in May, according to a Reuters poll, signaling that persistent trade tensions with major export markets are continuing to hamper growth in the manufacturing sector. This follows a trend of declining factory output as global trade pressures and tariff wars weigh on China’s export-driven economy.

The ongoing trade conflict with the U.S., particularly the imposition of steep tariffs under President Donald Trump, combined with disputes with the European Union, has left China vulnerable to external economic shocks. China is involved in simultaneous trade disputes with both the U.S. and the EU, which threatens to disrupt an already fragile economic recovery.

Escalating Tariffs and the Impact on China’s Economic Recovery

The U.S. decision to target China with a 145% tariff has occurred at a particularly challenging time for the world's second-largest economy, which is also grappling with sluggish income growth and a prolonged property crisis. These internal issues are exacerbated by the external tariff pressure, which further dampens manufacturing output. Analysts believe that the prolonged trade tensions could derail the fragile export recovery unless China can reach agreements with the U.S. and EU to mitigate the impacts of these tariffs.

Adding to the trade turmoil, the EU launched an investigation into whether anti-dumping measures should be applied to Chinese tyre imports for passenger cars and light trucks. Furthermore, discussions around tariffs on Chinese-made electric vehicles are also ongoing. In retaliation, China has considered investigating imports of European brandy and dairy products. These actions underscore the intensifying global trade disputes, which continue to affect manufacturers' outlooks.

Monetary and Fiscal Stimulus Likely in Response to Economic Pressures

As the manufacturing sector faces increasing difficulties, Chinese policymakers are expected to implement further monetary and fiscal stimulus measures in an effort to bolster growth and shield the economy from the negative impacts of tariff-related disruptions. Despite these efforts, analysts warn that the tariffs, particularly those imposed by the U.S., could slow down the economic momentum that had been gaining traction in the first quarter of the year.

The Chinese government has maintained a growth target of around 5% for 2025, though analysts suggest that without a resolution to the ongoing tariff disputes, meeting this goal may become increasingly challenging.

PMI Data and Outlook for Manufacturing

The official Purchasing Managers' Index (PMI) for China will be released on Saturday, while the private sector Caixin survey is due for release on June 3. Analysts expect the Caixin PMI to edge up slightly to 50.6 from 50.4 in April, indicating a modest improvement in manufacturing activity, but still signaling weak overall conditions.

The likely contraction of China’s manufacturing sector in May highlights the ongoing challenges posed by trade tensions, particularly with the U.S. and the EU. With deflationary pressures, sluggish income growth, and continued property sector issues, China faces a difficult road ahead in its efforts to sustain economic recovery. Continued monetary and fiscal stimulus will be critical in mitigating the negative effects of trade disputes, but uncertainty remains high regarding the global trade environment.

Source: Reuters

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China–U.S. Trade War

Trade War and Geopolitical Risks Cloud Airline Industry Outlook

At the International Air Transport Association’s (IATA) annual summit in New Delhi, global airline executives are confronting an array of challenges stemming from an unpredictable trade war and escalating environmental obligations. Despite a full rebound to pre-pandemic passenger levels worldwide, the aviation sector faces heightened cost pressures, disruptions in supply chains, and delays in aircraft deliveries. These operational difficulties are compounded by the erosion of a decades-long tariff-free environment in the aerospace industry due to evolving U.S. trade policies under former President Donald Trump. This shift introduces increased volatility and risk, affecting airline planning and financial stability.

While carriers in Europe and Asia report robust demand, the U.S. airline industry is contending with a recent downturn in travel volumes. This disparity adds complexity to forecasting passenger behavior and managing fluctuating operational expenses. Additionally, geopolitical tensions, such as India's ongoing conflict with Pakistan, force Indian airlines to reroute flights extensively, inflating costs and disrupting schedules. Such conflict zones have become an increasing operational burden, with IATA highlighting incidents linked to these areas as a critical safety concern requiring enhanced global cooperation.

Safety Concerns Amid Rising Air Traffic and Incident Rates

The summit also focuses on aviation safety, an issue brought into sharper relief by recent air accidents across Kazakhstan, South Korea, and North America. Coupled with concerns about air traffic control systems, especially in the United States, these developments emphasize the need for sustained vigilance and international collaboration to maintain safe skies amid growing traffic volumes.

IATA's commitment, established in 2021, to achieve net-zero carbon emissions by 2050 largely depends on the adoption of sustainable aviation fuel (SAF) and advances in aircraft technology. However, the transition faces significant uncertainties. Production of SAF remains insufficient to meet demand, with only one million metric tons produced in 2024—falling short of forecasts by a third. The high cost of SAF compared to traditional jet fuel presents a financial challenge for airlines, which are expected to absorb these expenses without adequate support from manufacturers or regulatory frameworks.

Delays by major aircraft producers Airbus and Boeing in delivering newer, more fuel-efficient models exacerbate the problem, limiting airlines’ ability to reduce emissions through fleet modernization. IATA Director General Willie Walsh has recently signaled the need to reassess the industry’s net-zero commitment, reflecting concerns about the feasibility of current sustainability pathways under prevailing economic and technological conditions.

Regulatory and Industry Response

Regulatory frameworks encouraging SAF production remain fragmented and underdeveloped across regions, hindering the scaling of sustainable fuel use. Subhas Menon, Director General of the Association of Asia Pacific Airlines, underscored the mismatch between demand and supply for SAF, as well as the prohibitive costs that deter wider adoption. Without cohesive policy support and investment, the aviation industry risks falling short of its climate objectives, posing strategic and reputational risks for airlines globally.

The IATA summit highlights the complex interplay between geopolitical trade disputes and environmental imperatives shaping the future of global aviation. Airlines must navigate uncertain economic conditions while accelerating innovation and collaboration to meet sustainability goals. The resolution of these issues will be critical in determining the industry's capacity to sustain growth, ensure safety, and fulfill its environmental responsibilities over the coming decades.

Source: Reuters

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Economic

Unexpected Decline in Retail Sales Highlights Consumer Restraint

Australian retail sales fell by 0.1% in April compared to March, defying analysts’ expectations for a 0.3% increase and breaking a three-month streak of growth. The decline is attributed largely to warmer-than-usual weather, which discouraged consumers from purchasing new winter clothing, impacting clothing retailers significantly. This seasonal anomaly combined with a lack of discount promotions at department stores contributed to a subdued retail environment.

The Australian Bureau of Statistics (ABS) reported that total retail sales reached AUD 37.2 billion ($23.91 billion), marking a 3.8% rise year-over-year—a deceleration from March’s 4.3% annual growth. Given Australia’s population growth of approximately 1.7%, this slower pace signals historically weak consumer demand.

Sectoral Variations and Regional Factors

While sectors such as food, clothing, and department stores registered declines, household goods and hospitality experienced relatively stronger sales. This was partly due to catch-up spending in Queensland, recovering from widespread flooding earlier in the year. The variation reflects shifting consumer priorities and regional economic recovery dynamics.

Robert Ewing, head of business statistics at the ABS, noted that the unseasonably warm April weather notably tempered demand for winter season items, contributing to the overall softness in retail sales.

Implications for Economic Growth and Monetary Policy

Retail sales, which account for roughly 35% of household consumption, suggest a subdued start to the second quarter, aligning with weak consumption patterns that contributed minimally to economic growth in the previous year—a condition typically observed during recessions. This fragility influenced the Reserve Bank of Australia’s (RBA) decision to reduce interest rates by 25 basis points to 3.85% in May, with markets anticipating further cuts possibly lowering rates to around 3.10% by year-end.

However, prior rate reductions have had limited impact on consumer behavior, as retail sales remained largely flat during the March quarter, and overall spending showed only marginal increases. This has led the RBA to revise down consumption forecasts for 2025, even as it hopes that cumulative effects of tax relief, easing inflation, and cheaper borrowing costs will gradually encourage greater consumer expenditure.

External Factors Dampening Consumer Confidence

Broader economic uncertainty, fueled in part by volatile global financial markets and the implications of U.S. trade tariffs—especially those targeting China, Australia’s largest trading partner—has weighed heavily on consumer confidence. Surveys indicated a marked decline in consumer sentiment in April, only modestly offset by reductions in tariff pressures, reinforcing caution among Australian households.

The unexpected dip in Australian retail sales during April underscores an environment of cautious consumer spending influenced by atypical weather conditions and lingering economic uncertainties. Despite monetary easing and improving inflation metrics, subdued consumption poses challenges for economic growth, suggesting that policymakers and businesses alike must navigate a fragile recovery landscape amid both domestic and global headwinds.

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Commodity

Oil Prices Weaken Amid Tariff Legal Fluctuations

Oil futures declined on Friday, with Brent crude slipping 0.41% to $63.89 per barrel and U.S. West Texas Intermediate (WTI) falling 0.44% to $60.67 per barrel, as markets braced for mixed signals caused by recent U.S. tariff rulings. A federal appeals court’s decision to temporarily reinstate President Donald Trump’s tariffs reversed a previous trade court ruling that had blocked these duties, causing renewed uncertainty. This legal back-and-forth has unsettled traders, contributing to price fluctuations, including a more than 1% fall in oil prices the previous day when the tariffs were temporarily blocked.

Analysts caution that as tariff-related litigation progresses through the courts, oil prices may continue to experience volatility due to the unclear trade outlook and its potential impact on global energy demand.

OPEC+ Meeting and Production Challenges in Focus

Amid this backdrop, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, are preparing to convene on Saturday to decide on an oil production increase slated for July. Market expectations are for a hike potentially surpassing the previous increases of approximately 411,000 barrels per day agreed upon in recent meetings.

However, OPEC’s efforts to enforce production discipline face hurdles, particularly with members such as Kazakhstan, which has reportedly refused to reduce its oil output despite exceeding its production quotas. Kazakhstan’s energy officials defend their stance by highlighting the country's relatively small global production share—less than 2%—and suggesting that oil prices above $70 to $75 per barrel would be acceptable to all producers.

Robert Rennie, head of commodity and carbon research at Westpac, notes that the dispute between OPEC and Kazakhstan has become more pronounced, complicating coordination efforts and potentially setting the stage for an even larger production increase than anticipated.

Implications for Oil Market Dynamics

The combination of legal uncertainty over tariffs and the possibility of a substantial supply increase from OPEC+ introduces mixed signals for oil prices. While tariff disputes may dampen demand prospects by raising costs and creating economic uncertainty, an elevated supply outlook from OPEC+ could exert downward pressure on prices.

The expiration of the Brent July futures contract on Friday adds another technical factor influencing price movements. Traders and market watchers remain vigilant for developments in both the trade policy arena and OPEC+ decisions, as these will heavily influence near-term price trends.

Oil markets face a complex environment shaped by unresolved U.S. trade tensions and internal challenges within OPEC+. The reinstatement of tariffs has introduced renewed uncertainty, while OPEC+ members navigate internal disagreements over production cuts. These factors collectively suggest that oil prices may continue to exhibit volatility and downward pressure in the short term, with the potential for supply-driven adjustments following the forthcoming OPEC+ summit.

Source: Reuters

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FastBull Featured

Daily News

[Quick Facts]

1. High inflation may prompt earlier rate hike by BoJ

2. US Appeals Court temporarily reinstates Trump-Era tariffs

3. Iranian FM: "Not Certain" about proximity to US Deal

4. Daly: Fed determined to bring inflation down to 2% target

5. Second Court blocks Trump's Tariff policy, but only for two companies

6. Logan: Rate adjustments could take quite some time

7. Fed's Goolsbee: Rates could come down if tariffs are avoided by a deal or otherwise

[News Details]

High inflation may prompt earlier rate hike by BoJ

Tokyo's CPI data indicates a further broad-based acceleration in inflation, suggesting that the BoJ may raise interest rates even earlier than Capital Economics' current forecast of October. Capital Economics noted that core inflation (excluding fresh food) rose to a two-year high in May, while inflation excluding both fresh food and energy also climbed to a 17-month high. BoJ Governor Kazuo Ueda has warned that recent food price shocks could spill over into underlying inflation, prompting Capital Economics to predict that the central bank will soon restart its tightening cycle. However, Capital Economics confirmed that the baseline forecast of tightening would be in October, but inflationary pressures leave the door open for a rate hike as early as July.

US Appeals Court temporarily reinstates Trump-Era tariffs

On May 29th, the US Court of Appeals for the Federal Circuit granted the Trump administration's request to temporarily stay a ruling by the US Court of International Trade that had blocked the enforcement of tariffs imposed under the International Emergency Economic Powers Act. The appellate court also ordered both parties to submit written arguments on the issue of halting the tariffs, with filings due by early next month. The court will then decide on further steps.

Iranian FM: "Not Certain" about proximity to US Deal

Responding to recent media speculation that Iran and the US are close to reaching an agreement, Iranian Foreign Minister Araghchi said on the 29th, "I cannot say that it has been achieved." In a social media post, Zarif stated that Iran sincerely seeks a diplomatic solution that serves the interests of all parties. However, achieving this goal requires a comprehensive agreement that ends all sanctions and safeguards Iran's nuclear rights, including uranium enrichment. "The way to an agreement is not through the media, but through negotiations," he added.

Daly: Fed determined to bring inflation down to 2% target

San Francisco Federal Reserve President Mary Daly said on Thursday that the Fed is "determined" to bring inflation down to its 2% target and that current policy is well-positioned to achieve this. The Fed is making progress, and importantly, it remains committed to finishing the job. Meanwhile, the labor market and economic conditions remain robust. Businesses have not completely halted activity but have reduced risk-taking.

Regarding President Trump's call for Fed Chair Jerome Powell to cut interest rates, Daly said this is not the first time a president has made such a request. However, she emphasized that the Fed will continue to focus on doing what is best for the American people, as both the Fed and Congress are accountable to them.

Second Court blocks Trump's Tariff policy, but only for two companies

On May 29th, the U.S. District Court from the District of Columbia upheld a previous ruling by the U.S. Court of International Trade, blocking the Trump administration's tariff policy and ordering a 14-day suspension of its tariff order. The lawsuit was filed by two toy companies, and the court's "preliminary injunction" currently applies only to these two firms. According to the Associated Press, the Trump administration is facing at least seven lawsuits related to its tariff policies.

Logan: Rate adjustments could take quite some time

Dallas Fed President Lorie Logan stated in a speech on Thursday that tariffs could push inflation higher, at least temporarily. But if inflation expectations rise, the impact could become more persistent. While fiscal policy or regulatory changes might stimulate demand, economic uncertainty and market volatility could also lead to reduced spending by consumers and businesses, weighing on growth.

With the labor market remaining strong, inflation gradually moving back toward target, and risks to the FOMC's objectives roughly balanced, Logan believes monetary policy is in a good place. It could take quite some time to see whether the balance of risks shifts in one direction or another before the FOMC determines how interest rates should be adjusted.

Fed's Goolsbee: Rates could come down if tariffs are avoided by a deal or otherwise

Federal Reserve Bank of Chicago President Austan Goolsbee said on Thursday that they could return to a situation before April 2 (referring to the date Trump signed the so-called "reciprocal tariffs") where interest rates could come down if tariffs are avoided by a deal or otherwise. If stable full employment is achieved and inflation returns to target levels, then interest rates could be lowered to where they ultimately should be.

Goolsbee noted that until the situation becomes clearer, the threshold for taking any action is higher. The U.S. is currently facing a combination of rising prices and a cooling job market, but this does not equate to the high unemployment and high inflation "stagflation" of the 1970s. Instead, it represents a "stagflationary direction"—a situation where "inflation is rising while employment conditions are deteriorating."

[Today's Focus]

UTC+8 14:00 Germany's April Retail Sales MoM (Real)

UTC+8 16:30 Speech by ECB Governing Council Member Panetta

UTC+8 20:00 Germany's May CPI YoY

UTC+8 20:30 U.S. April PCE

UTC+8 20:30 Canada's Q1 GDP Annualized QoQ

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Economic

Forex

Dollar’s Decline Amid Renewed Trade and Fiscal Uncertainty

The U.S. dollar continued to soften on Friday, poised to record its fifth consecutive monthly decline—a notable streak reflecting mounting investor caution. This trend unfolds against a backdrop of persistent uncertainty over trade policies and fiscal stability in major developed economies. The dollar’s volatility intensified after a federal court temporarily reinstated some of the most comprehensive tariffs introduced by former President Donald Trump, just days following a separate ruling that blocked these tariffs. Trump publicly criticized the judicial decisions and expressed hope for a Supreme Court reversal, further contributing to market unease.

Investors’ growing apprehension regarding the unpredictable trajectory of U.S. trade policy has prompted capital outflows from U.S. assets in favor of alternatives perceived as less exposed to such risks. Kyle Rodda, a senior analyst at Capital.com, characterized the latest court ruling not as a resolution but as the onset of a new wave of uncertainty, reinforcing a cautious market environment.

Economic Data and Inflation Outlook Remain in Focus

Recent U.S. economic indicators, including weekly jobless claims and growth figures, failed to alleviate fears of an impending economic slowdown. Market participants are particularly attentive to the upcoming personal consumption expenditure (PCE) inflation report—considered the Federal Reserve’s preferred inflation gauge—for potential signals on future monetary policy adjustments.

Concerns about fiscal debt levels in the United States and other advanced economies have also shaped market sentiment. Weak demand for newly issued longer-term government bonds in both the U.S. and Japan signals investor wariness regarding debt sustainability and may constrain government financing.

Currency Movements and Emerging Market Trends

On Friday, the euro showed modest strength against the dollar, trading near $1.1378, while the Swiss franc also gained, reflecting the dollar’s relative weakness. The dollar is expected to end May lower against major currencies including the euro, Swiss franc, and British pound. The U.S. Dollar Index, which tracks the greenback against a basket of six currencies, remained subdued and was set to decline 0.4% over the month.

In contrast, emerging market currencies have rallied, with a related index rising 2.2% in May—its strongest monthly performance since late 2023—suggesting renewed investor appetite for risk in these markets. The Japanese yen appreciated 0.3% to 143.73 per dollar following data showing Tokyo’s underlying inflation reached a two-year peak, which increases the likelihood of further Bank of Japan interest rate hikes. Nevertheless, the dollar is still expected to post a modest monthly gain against the yen, marking a reversal after five months of depreciation.

Looking Ahead: Trade Deadlines and Bond Yields

Market watchers remain focused on the approaching July 9 deadline for tariff reviews mandated by Trump-era policies. Any developments or potential trade agreements ahead of this date could sway currency markets and investor confidence. Meanwhile, yields on longer-dated U.S. and Japanese government bonds have slightly eased this week but remain near multi-month highs, reflecting ongoing skepticism over the fiscal outlook.

Elsewhere in the currency markets, the Australian dollar experienced a slight decline to $0.6429 but was poised to register a small gain for the month, while the New Zealand dollar traded at around $0.5973.

The persistent slide in the U.S. dollar reflects complex interplay between trade policy uncertainty, concerns about fiscal health, and shifting investor sentiment toward emerging market assets and other currencies. With critical inflation data pending and key trade deadlines approaching, the greenback’s trajectory will likely remain sensitive to developments on multiple fronts, underscoring the challenges faced by policymakers and market participants alike in navigating a volatile global economic environment.