Breakfast briefing: What will the RBA do?

Economy / news

Canadian housing starts rise; Singapore's exports fall; so do China's car sales and India's exports; eyes on RBA review, tinged with uncertainty; UST 10yr at 4.49%; gold up and oil little-changed; NZ$1 = 57.4 USc; TWI = 67.2

18th Feb 25, 7:19am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand with news today will be dominated by the Reserve Bank of Australia rate review, especially as US financial markets are on holiday (Presidents Day).

Meanwhile, Canadian housing starts rose in January from December and came in +3.7% higher than year ago levels. Montreal and Vancouver demand drove the increases.

Across the Pacific, the Japanese economy continues its good rebound with their growth rate beating estimates, and by quite a bit. Japan’s GDP grew by +0.7% qoq in Q4-2024, accelerating from an upwardly revised +0.4% expansion in Q3. This marked the third consecutive quarterly growth, on the back of a strong rebound in business investment. Year on year it is up +2.8% which was very much better than the +1.0% expected. This is very good for Japan, who has struggled to expand for a long time. And don't forget this is the world's fourth largest economy. (Japan is also one of those economies that looks better in PPP terms.)

Singapore's exports actually fell in January and by -3.3% - and that was much more than the -0.3% dip expected.

Chinese new vehicle sales slipped in January from December. Not only was it the usual seasonal dip, it was more than expected, and the year-on-year change also dipped slightly which is not something we have seen since the pandemic.

It was a similar story for Indian exports, which fell in January from December, to be -1.3% lower than the same month a year earlier. India is not a powerhouse exporter, with theirs only about 10% of China's, and less than Taiwan. They export at about the same level as Australia and Vietnam. Those weak exports meant its trade deficit widened.

At 4:30pm we will get the latest update to the RBA's cash rate target. Markets expect a -25 bps cut to 4.10% but you have to say the conviction in the market is not high. All three possibilities are still live; a cut, no change, or even a hike given their highish inflation levels. We will know soon enough.

The UST 10yr yield is at 4.49%, up +1 bps from yesterday at this time. The key 2-10 yield curve is still at +23 bps. Their 1-5 curve is little-changed at +11 bps. And their 3 mth-10yr curve is slightly steeper at +17 bps. The Australian 10 year bond yield starts today under 4.50% and up +7 bps from yesterday. The China 10 year bond rate is now at 1.68% and up +4 bps bps. The NZ Government 10 year bond rate is now at 4.63%, up +2 bps from yesterday.

Wall Street is on holiday (Presidents Day) so no trading there. Overnight European markets all rose, some minor (Paris +0.1%) and some substantially (Frankfurt +1.4%). Tokyo ended its Monday trade up +0.1%. Hong Kong was little-changed. Shanghai was up +0.3%. Singapore ended up +0.7%. The ASX200 ended its Monday trade down -0.2%, whereas the NZX50 ended up +0.6%.

The price of gold will start today at just under US$2898/oz and up +US$15 from yesterday.

Oil prices are up +50 USc at just over US$71/bbl in the US and the international Brent price is unchanged at US$75/bbl.

The Kiwi dollar is now at 57.4 USc and unchanged from yesterday. Against the Aussie we are down -10 bps at 90.1 AUc. Against the euro we are up +20 bps at 54.8 euro cents. That all means our TWI-5 starts today just over 67.2, and down -10 bps from this time yesterday.

The bitcoin price starts today at US$95,470 and down another -1.7% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.0%.

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59 Comments

by Houses Overpriced | 18th Feb 25, 7:58am 1739818734

Spoke to Mr. O this morning.. 50bps cut is not a done deal..

by Baywatch | 18th Feb 25, 8:02am 1739818923

Not according our resident expert here..Mr Y?

by Yvil | 18th Feb 25, 10:07am 1739826460

Indeed, 0.5% cut this week.

by sgtshortcut | 18th Feb 25, 8:04am 1739819081

Come on now…Orr-some’s gonna cut, I think Toye has said it best, cut today then jawbone.

by Yvil | 18th Feb 25, 10:08am 1739826525

He's also flip flopped between 0.5% cut, no cut, 0.25 % and back to 0.5%.

by JimboJones | 18th Feb 25, 8:10am 1739819435

Anything less than .5% and he’ll be lynched.

by KH | 18th Feb 25, 12:55pm 1739836534

Hang on. I need to spruik interests rates up.

The ole term deposits have not dropped much, and with low inflation it's been quite lovely.

So lets have 10% rates please.

by RookieInvestor | 18th Feb 25, 8:18am 1739819936

I spoke to Mr. O at 7:59am, he said likely a 75bps cut..

by safeashouses | 18th Feb 25, 8:41am 1739821266

Cant help but agree Rookie - its time to pull the ripcord

by buyandhodl | 18th Feb 25, 8:48am 1739821709

I spoke to Mr. Orr at 8.43am, and he was reminiscing on the good times when people wrote headlines like 'Shock and Orr'.

He chuckled that he likes to give the markets a bit of a jolt from time to time, and remind them whose boss. Gave me a sly wink, told me they were thinking about 100 bps, and then started rambling on about how the Reserve Bank can be thought of as some sort of giant tree.

by iliketobike | 18th Feb 25, 9:18am 1739823518

Presumably they play whale song in the elevators at the RBNZ

by Blackdog | 18th Feb 25, 10:01am 1739826061

Brilliant

by MacroView | 18th Feb 25, 9:34am 1739824463

Non-tradable inflation to the end of the December quarter was 4.5% and food prices in January rose 1.9% (22.8% annualised). Cutting the OCR now would be a repudiation of the RBNZ's job to control inflation. As lower and moderate income households strain to buy food, decisions taken in the name of 'financial stability' (synonymous with protecting mortgagors and ultimately bank shareholders) also have second order effects including an accelerated loss of faith in the 'authorities'.

by kraken | 18th Feb 25, 10:47am 1739828823

This will be a brief breather and perhaps the last cut, inflation will tick up again, and the bear bond market will continue this year.

by nigelh | 18th Feb 25, 9:47am 1739825224

I agree with your moniker but on the OCR my prediction is 50bps tomorrow but then nothing for 6 months and maybe as long as 9 months

by JimboJones | 18th Feb 25, 8:03am 1739818992

“All three possibilities are still live; a cut, no change, or even a hike given their highish inflation levels” - I wonder if the Aussies will end up with minor stagflation. Not that they have much stag or flation, but they may find themselves in a bit of a holding pattern of higher interest rates compared to their peers. Same for the US too. Their central banks didn’t kill their economy completely like ours, which at the moment certainly seemed like the better option, but the proof will be in the pudding.

by RookieInvestor | 18th Feb 25, 8:23am 1739820215

Australia has seen some serious expansion since C19 and probably will for a while yet.

how much of their expanding economy is fueled by mining? and what happens when that slows down? or are they forever locked in to harvesting dirt?

by TommyYank-old | 18th Feb 25, 1:01pm 1739836897

Same could be said of New Zealand's lot. Cows & Sheep bringing home a major portion on the Export Income for how many years now--100-or more?

by interesting1234 | 18th Feb 25, 3:25pm 1739845506

They have land, and mining of many resources the world needs (not just wants) therefore they will forever have a guaranteed income stream. They can have a recession, but due to this they are highly unlikely to ever have a real depression

by Rampart | 18th Feb 25, 8:31am 1739820688

No freaking way will there be a rise in interest rates. The NZ economy is on its knees. To increase rates would be economic suicide.

by JimboJones | 18th Feb 25, 9:21am 1739823673

God no. That was AU not NZ.

by Rampart | 18th Feb 25, 10:28am 1739827694

Ah my mistake

by kiwikidsnz | 18th Feb 25, 8:42am 1739821341

"Why the Reserve Bank (Oz) has little option but to cut interest rates"

https://www.abc.net.au/news/2025-02-18/why-the-rba-has-little-option-bu…

by Let me be Frank | 18th Feb 25, 8:00am 1739818822

"Economics are the method, the object is to change the soul."

~ Margaret Thatcher

How is this achieved?...this sums it up succinctly

https://www.youtube.com/watch?v=2fsdXMJXwNQ

(12 mins)

by Foxglove. | 18th Feb 25, 8:36am 1739820999

Japan decimated from WW2 now runs the third/fourth largest economy in the world. It interchanges in that spot with fellow WW2 Axis member Germany, from time to time and the other one Italy is not all that distant. Japan last December announced another 9.4% uplift in defence spending, on top of existing steady annual increase. Meanwhile in Continental Europe the so called powers that be in gambling on Trump not returning are now, despite all the clear warning, caught with their pants round their ankles. Even though collectively having vastly more industrial muscle than Russia they find themselves incapable of defending themselves from said Russia and are, from the look of it, now paralysed with fear. Whereas Japan obviously has not forgotten its own history.

by BadRobot | 18th Feb 25, 8:50am 1739821804

This sounds more like a broad sweeping statement based on copium or hopium. Where is the evidence that Europe can't defend it's self against Russia. There is no way to know what would happen in a war with Europe without an actual war. Russia can't even take over Ukraine Just saying.

by Foxglove. | 18th Feb 25, 10:36am 1739828216

Just saying? No that is a good and fair point. Russia cocked up its invasion by trying to move west through the south and not north to south through Kharkov, the key to Ukraine because of its positioning. As the four huge battles in WW2 demonstrated Kharkov allows advancing west to Kiev, above the Dnieper. By any measure of amount given their blundering around ever since and the fact that their forces have been severely depleted in manpower, munitions, armaments and morale, the Russians are not the force they were thought to be, if they ever were in fact, and if a military confrontation over Ukraine is needed, it wouldn’t be much better timed than now.

by Pa1nter | 18th Feb 25, 9:34am 1739824445

Japan and Europe face vastly different threats, so their defense priorities differ somewhat.

You can basically discount Russia as a Naval or Air threat.

by Foxglove. | 18th Feb 25, 9:48am 1739825319

Well why that is should be blindingly obvious if you consider the theatres of WW2. One was fought mostly on vast territories of land Europe, North Africa and and the other mostly island by island in the vast Pacific Ocean.

by Pa1nter | 18th Feb 25, 10:46am 1739828797

Russia's military focus is on holding itself together and ground warfare in Europe, fo' sho.

Their issue being that weakness in naval and air capability will give a better equiped adversary a pass to dominate the sea and air, and conduct a more precise and complete ranged war against Russian assets.

I'd imagine the war in Ukraine would look considerably different if one side were able to control the skies.

by Foxglove. | 18th Feb 25, 11:08am 1739830099

Yes the notion of traditional air superiority has been dispatched hasn’t it. So important in Barbarossa in both offence and retreat and as Rommel groaned, in Nth Africa and France and surrounds. Don’t dismiss the Russian navy entirely though. It only would take one nuke sub to do the necessary damage.

by The Person | 18th Feb 25, 11:04am 1739829883

> the Russians are not the force they were thought to b

Indeed, there are solid reports now that they have had to resort to using donkeys to resupply the front.

by buyandhodl | 18th Feb 25, 8:55am 1739822145

Yeah gosh, that's embarassing isn't it? How about Starmer's comments that security guarantees "must be part of a package with US backing because otherwise I don't think they will operate effectively as guarantees because they won't be an effective deterrence".

https://www.bbc.com/news/live/crr0gngkjrvt

Germany, UK, France, Italy.... all of these countries have GDP higher than Russia and access to better weapons. They should have no problem at all dealing with them.

Last time Trump was in power I hoped that it was the jolt Europe needed to wake up to the fact that it can, and should, be a strong power in it's own right. Perhaps this time...

by Zwifter | 18th Feb 25, 9:44am 1739825074

If Russia took the whole of Ukraine, NATO would still do nothing. Putin is smart enough not to cross a NATO border. Europe is broke and facing all sorts of problems, the USA is basically pulling out and I'm waiting to hear that all the US troops stationed there are returning home. Putin is a chess master.

by Baywatch | 18th Feb 25, 3:40pm 1739846453

USa is more broke..(they just don't realise it yet)

by Hans Brink | 18th Feb 25, 9:56am 1739825803

Europeans are very reluctant to put on a uniform. Basically many there are pacifists. Conscription is whats needed but the backlash would be massive. Maybe a swing to a hard right authoritarian rule would wake the population.

by Foxglove. | 18th Feb 25, 10:42am 1739828536

Suggest any push going to shove will be from Poland, the Baltic States and possibly Finland. Like Ukraine all of those have had the harsh experience of Russian occupation and treatment. All should realise that if they need to fight then that confrontation would best to be made beyond their own borders.

by murray86 | 18th Feb 25, 9:11am 1739823103

Kind of interesting isn't it? We've all grown up in a western, essentially 'democratic', world which to many extents was protected by American might. The realisation today is that the creeping corruption in US politics means that America can no longer be trusted to be there when they're needed. Trump's actions may well result in Europe and other western, democratic nations forming a block excluding the US, that is more self sufficient, especially in defence, but including trade. Trump has proven that any treaty or past agreement is only as good as the current administration. The consequences will be that the US cannot be relied upon for trade or security guarantees, and could well find itself isolated as they find their "America First" policy means no one will deal with them and it becomes "Only America".

by Foxglove. | 18th Feb 25, 9:29am 1739824170

The USA only really got onto the world stage as a rising super power post WW1. 100 years or so history in European comparison, is nothing. As well it would not be uncommon to suggest that Americans are more rough and ready in their diplomacy than cultivated and this is surely being demonstrated at present If there are expectations of military and commercial security being guaranteed by America then it is more than extraordinary, given the disparities in length of the relative players’ history, that such vast reliance could be taken for granted in not much more than a century. Especially given respective European centuries of warfare, ever changing allegiances. Who can count how many armies have marched through Belgium for a start. The Europeans have dropped their own ball on themselves and don’t appear to have much of anything with which to catch it again.

by murray86 | 18th Feb 25, 9:44am 1739825067

Largely agree from a history perspective. But American 'might' has largely been based on an industrial capacity that cannot easily be attacked due to geography. Most western nations have come to depend on that due to promises and agreements.

In the last 60 - 80 years Americans, I am sure, would have liked to thought themselves 'cultured', but Trump has effectively proven that not so much.

It is a salient lesson though, politics tends, over time, to force a degree of promiscuity towards bed fellows and excessive dependence in any direction can ultimately only lead to vulnerability.

I heard Luxon this morning responding to a reporter that he intends to increase our defence spending. I note that he didn't say 'capability' which would have been more telling. What is important though is a longer term view toward resilience in the face of vulnerable supply lines. I do however look forward to the re-activation of a strike wing for our airforce.

by He Kahukura | 18th Feb 25, 10:51am 1739829070

I hope you won't mind paying for a strike wing from your superanuation promise. Billions required for a ten minute wonder.

No capability remains in the country to maintain and service a strike wing let alone train the frontline personnel. There was no capability in 1939 either and it took 5 years to become effective with total US input. Aviation capability for the immediate best remains as 'eyes in the sky' with low cost (relatively) UAVs. Long range and short range with strike capability. Simple ground attack aircraft are far more capable in the style of the older SU 25 and A10 when coupled with in field operational site deployment. These are robust simple airframes with a lot of built in redundancy. Just add tech. Fly off roads and disperse maintenance. Even so look to spending multiple billions for up to 20 aircraft.

by murray86 | 18th Feb 25, 12:22pm 1739834559

Yes there is a cost in time and money but I believe it to be necessary. Air power is about force projection as well as force protection. The cost today is much more than what it should be thanks to Helen Clark. She called it a 'benign strategic environment' and used that and a few falsehoods to dismantle a primary military capability. That will cost the country a lot in the long term.

Multi capable aircraft are required. Most likely to be F16s but I think the SAAB Gripen E would do too.

by Camel's back | 18th Feb 25, 1:12pm 1739837537

Just get drones, for sea and air.

by kiwikidsnz | 18th Feb 25, 1:39pm 1739839141

+1 , & for land as well. Ukraine has demonstrated the capabilities of cheap/DIY asymmetric weapons

by Yvil | 18th Feb 25, 10:33am 1739828022

Being born and raised in Europe, I sadly very much agree with you, Fox

by TommyYank-old | 18th Feb 25, 1:33pm 1739838824

The difference between Europe and the United States can be summed up in one simple Statistic. Last November 12% of American Voters were Veterans. I would guess there is not a European Nation that comes even close to that stat. American's are tired of being the parents that have to carry the costs for the ones who don't want to spend the money themselves-much less pick up an arm and enter their nations armed forces. Trump warned them the first time he was in office to "grow up". Finally they are "getting it". The US will not abandon NATO, but they will force change.

by buyandhodl | 18th Feb 25, 10:51am 1739829094

Indeed. They've been asleep at the wheel since the Marshall plan. Just assuming that they could forever live in a cosy, inefficient, high tax, low military spending, social democratic utopia. That history had ended, and if it ever started again the USA would foot the bill for them. And if they didn't foot the bill, they would at least put the boots on the ground.

by Foxglove. | 18th Feb 25, 11:03am 1739829796

Got to thinking, the plot put forward in Watership Down kind of resonate. A bunch of rabbits, their own warren under pressure arrive at the Warren of Snares where all rabbits are fat and lazy and about to be eaten and all the time the warlord warren Efrafh is gathering on the horizon. So what have we equivalently, Ukraine, The EU, Russia?

by Silvi | 18th Feb 25, 10:01am 1739826081

You are forgetting both Germany and Japan following WW2 were restricted in building up their military. Japan having got the nod yes, is coming basically from a zero base. Germany has been investing however they are experiencing hybrid warfare from the Russians as was evidenced by the the engines of their latest ship which was due to be launched. If the metal hadn't been spotted it would have been a disasters but right now it is a delay.

As for inaction watch what they do. Two ships are heading from Europe toward Greenland as we write. Not American.

by Toye | 18th Feb 25, 9:24am 1739823853

REINZ HPI mia

by redcows1 | 18th Feb 25, 9:30am 1739824222

I'm wondering how things are going in the deepest darkest corridor's of Australian power? Trumps USA have made it quite clear they are not interested in other countries democracy, infact they are way more happy to deal with dictatorial regimes. The dry red sparsely populated continent would be ripe for the picking with no US protection. So much resource just waiting.

by Silvi | 18th Feb 25, 10:02am 1739826163

Well the founders may not have liked Kings but they went for a Republic not a democracy as such..

by Foxglove. | 18th Feb 25, 10:34am 1739828075

Australia was certainly daft in handing over the control of their most strategic port Darwin,to Chinese interests. But seem to have woken up perhaps if the strategy to switch supply of their forthcoming nuke subs from France to the USA is anything to go by.

by redcows1 | 18th Feb 25, 12:09pm 1739833773

Actually I was more thinking USA were as much a problem as China, why would they be trusted in any way as a friend.

by Foxglove. | 18th Feb 25, 12:32pm 1739835160

Perhaps because ever since the admittedly suspect annexation of Hawaii and the false flag war on Spain over 100 years ago. they haven’t actually grabbed and then held onto any territory of note despite subsequently being a major deciding factor in two world wars.

by Hardly | 18th Feb 25, 9:48am 1739825307

Is it just me or is REINZ late again with the reports this month?

by Time Lord | 18th Feb 25, 10:13am 1739826794

It's not just you. REINZ have become very inconsistent with their HPI release dates.

by Yvil | 18th Feb 25, 10:36am 1739828198

Tomorrow.

by Silvi | 18th Feb 25, 11:16am 1739830618

So long as you give everything to US in the future

https://www.telegraph.co.uk/business/2025/02/17/revealed-trump-confiden…