Sample Category Title

New Zealand’s trade balance surprised to the upside in November, with the deficit narrowing sharply to NZD -163m, far smaller than expectations for a shortfall of around NZD -1.2B. The improvement was driven by a solid pickup in exports, which rose 9.2% yoy, or NZD 588m, to NZD 7.0B.

Export performance was mixed by destination. Shipments to Australia surged by 31% yoy, while exports to the EU also rose strongly by 51% yoy. By contrast, exports to China slipped modestly by -0.7%yoy, while shipments to the US fell sharply by -17% yoy, and Japan by -1.9% yoy.

Imports rose at a more moderate pace of 4.4% yoy to NZD 7.2B. Gains were led by stronger inflows from the US (36% yoy), EU (17% yoy) and South Korea (20% yoy). Imports from China rose a modest 1.7% yoy. Imports from Australia declined (-7.7% yoy).

Full NZ trade balance release here.

Key insights from the week that was.

Australia’s key release for the week was the Westpac-MI Consumer Sentiment Index which, after November’s ‘net positive’ read, fell 9% to 94.5 in December – a ‘cautiously pessimistic’ level. Responses to questions on news recall suggest consumers were shaken by recent inflation results, the tone of related coverage now viewed as decisively negative versus somewhat mixed three months ago. This has sparked one of the sharpest turnarounds in consumers’ mortgage rate expectations on record, 86% of those with a view now anticipate mortgage rates to be the same or higher in a year’s time.

This has fed into renewed concerns over the economy, the one-year and five-year ahead sub-indexes falling 9.7% and 11.7% respectively. Buyer sentiment also looks to have been crimped, the ‘time to buy a major household item’ sub-index shedding 11.4% to be well below average. Official data is pointing to a genuine consumer upswing, driven by a recovery in real household disposable incomes; however, higher inflation, interest rates and bracket creep threaten the outturn. As a result, the year-ahead outlook for family finances fell 6.1% to be modestly below average.

The RBA has also taken signal from the recent lift in inflation, with only some of the pressures deemed temporary. As detailed by Chief Economist Luci Ellis earlier this week, Westpac continues to believe inflation will moderate through 2026, but the Monetary Policy Board’s more hawkish assessment has pushed back the timing of further policy easing into 2027. There are risks to both sides of our view for policy to remain on hold in 2026 and two cuts in H1 2027. If inflation continues surprising meaningfully to the upside in the near term, a rate hike could become a possibility. But, if the labour market weakens more than expected, the cuts now forecast for 2027 may need to be brought forward.

Fiscal policy developments are also worth monitoring vis a vis inflation and growth. The Federal Government’s MYEFO revealed an $8.7bn improvement in the budget’s bottom line over the forward estimates due to a tax windfall associated with higher commodity prices and a firmer-than-expected economic upswing. If the government elects to save the bulk of the windfall, it would ease near-term inflationary pressures – at the margin.

Before moving offshore, a final note on the local manufacturing sector. The latest Westpac-ACCI Survey of Industrial Trends revealed that the long-awaited improvement in conditions is finally starting to materialise, the Actual Composite bouncing from a broadly neutral read to a solid 55.1 in Q4. The Expected Composite meanwhile continued to lift to fresh cycle highs. Some of the hallmark challenges facing the sector, such as elevated costs, skilled labour shortages and material constraints, has restricted the ability for some manufacturers to respond to firmer demand. Solid investment intentions and plans for hiring, if realised, should go some way to alleviating capacity constraints.

Over in the UK, the Bank of England cut rates by 25bps to 3.75% in a narrow 5-4 vote. Those voting for a cut emphasised the downside risks to growth; those for a pause that inflation, which came in at 3.2%yr earlier in the week, could show greater persistence. On the outlook, Governor Bailey noted that “judgements around further policy easing will become a closer call” suggesting that the BoE is nearing the end of its easing cycle. With GDP growth expected to be only slightly above 1% in 2026 and inflation trending down, we maintain a view of further gradual BoE easing in H1 2026, by 25bp per quarter. However, the committee may proceed more cautiously, delaying cuts to the second half of next year.

Across the English Channel, the European Central Bank kept rates steady at 2.0% with President Lagarde noting once again that "policy is in a good place". Inflation was revised up for 2026 due to a slower descent in services inflation (core inflation now 2.2%yr), but it is still expected to stabilise at target in 2027/2028 (1.9% and 2.0%). The economic growth projections have also been revised up to 1.4% in 2025, 1.2% in 2026 and 1.4% in 2027, where growth is expected to remain in 2028. The statement made clear the "Governing Council is not pre-committing to a particular rate path", highlighting that policy will be fine-tuned depending on how the risks evolve.

In the US, November's inflation read surprised to the downside, the core measure rising 2.6%yr while headline prices rose 2.7%yr, both down from 3.0%yr in September. However, with the government shutdown precluding an October report and essentially no month-to-month detail provided for November, the FOMC is unlikely to take signal from this inflation read. Earlier in the week, non-farm payrolls rose 64k in November after a 105k decline in October, both released at the same time. Average job gains over the last 3 months are circa 20k, towards the bottom of the range estimated to be consistent with balance between labour demand and supply. It is unsurprising then that the unemployment rate edged up 0.2ppts between September and November to 4.6%.

In Asia meanwhile, Chinese partial data came in softer than expected in November. Retail trade was up just 4%ytd, weighed down by persistent weakness in consumer prices, but more significantly weak sentiment and declining wealth. Equities are now trending higher, but house prices continue to decline. Industrial production grew 6%ytd, however, highlighting that the capacity investment of recent years is earning a return. Fixed asset investment fell 2.6%ytd though, as high-tech manufacturing retraced some of its rapid gains of prior years, and property construction continued to contract. Clearly, pro-active stimulus in scale is necessary to put a floor under activity and, in time, see sentiment move back up.

Further east, the Q4 Tankan survey showed conditions improved by two points to 17pts, supporting views for a rate hike later today by the Bank of Japan. The output prices measure remained broadly steady, with one-year, three-year and five-year ahead projections all consistent with at-target inflation. Investment plans remain high, albeit with a slight downgrade from last quarter's expectations. Software investment is anticipated to increase 12.2%, while R&D investment is expected to rise 4.6%. All this is consistent with reports of firms investing to reduce their demand for labour and in pursuit of productivity. Employment conditions remained consistent with a tight labour market; firms expect to hire more new graduates in the following financial year. Overall, the survey points to a tight labour and historically elevated inflation expectations, which should aid workers case for higher wages in FY26 (ending in March 2027).

Key Highlights

• USD/JPY is struggling to continue higher above 156.00.
• A key bearish trend line is forming with resistance at 156.35 on the 4-hour chart.
• Bitcoin remained in a range above the $85,000 support.
• Gold could continue to rise if it settles above $4,365.

USD/JPY Technical Analysis

The US Dollar formed a base near 154.35 and corrected some losses against the Japanese Yen. USD/JPY climbed above 155.00 before the bears appeared.

Looking at the 4-hour chart, the pair surpassed the 200 simple moving average (green, 4-hour) and tested the 100 simple moving average (red, 4-hour) and. The bears remained active near the 61.8% Fib retracement level of the downward move from the 156.95 swing high to the 154.39 low.

Immediate resistance sits near 156.00. The first key hurdle is seen near 156.30. There is also a key bearish trend line forming with resistance at 156.35.

A close above 156.35 could open the doors for a move toward 157.00. Any more gains could set the pace for a steady increase toward 158.00.

On the downside, there is key support at 155.00. The first major support is 154.50. The next support could be 154.30, below which the bears might aim for a move toward 153.50.

Looking at Gold, the bulls remain in action and might soon aim for a move above the $4,380 level in the near term.

Upcoming Key Economic Events:

• US Existing Home Sales for Nov 2025 (MoM) - Forecast +0.1%, versus +1.1% previous.
• Michigan Consumer Sentiment Index for Oct 2025 (Prelim) – Forecast 54.2, versus 55.1 previous.

EURUSD: ⬇️ Sell

• EURUSD reversed from resistance area
• Likely to fall to support level 1.1600

EURUSD currency pair recently reversed from the resistance area between the resistance levels 1.1800 and 1.1910 (former multi-month high from September) – intersecting with the upper daily Bollinger Band.

The downward reversal from this from the resistance area created the daily Japanese candlesticks reversal pattern Shooting Star.

Given the strength of the nearby resistance area, EURUSD currency pair can be expected to fall to the next round support level 1.1600 (low of the previous wave 2).

AUDJPY: ⬆️ Buy

• AUDJPY reversed from support area
• Likely to rise to resistance level 104.25

AUDJPY currency pair recently reversed up from the support area between the support level 102.30 (former monthly high from November) and the support trendline of the daily up channel from October.

The support level 102.30 was further strengthened by the 38.2% Fibonacci correction of the sharp upward impulse from November.

Given the strong daily uptrend and continuation of the bearish yen sentiment, AUDJPY currency pair can be expected to rise to the next resistance level 104.25 (top of the previous impulse wave iii).

• ECB decided to leave its key policy rates unchanged with the deposit facility rate at 2.00% as widely expected by markets and consensus.
• The new staff projections delivered a hawkish surprise for markets with upward revisions to growth over the entire horizon and to inflation in 2026. However, the moves faded during the press conference as Lagarde’s “meeting by meeting” approach and lack of guidance did not reaffirm Schnabel’s hawkish views.
• We maintain our call that the ECB will leave the deposit rate unchanged at 2.00% throughout both 2026 and 2027.

As widely expected, the ECB decided to keep its policy rates unchanged at today’s meeting, leaving the deposit rate at 2.00%. The new staff projections delivered a hawkish surprise for markets with upward revisions to growth over the entire horizon and to inflation in 2026 (see chart 1). The GDP forecast for 2026 was revised up to 1.2% y/y (from 1.0%) and to 1.4% y/y in 2027 (from: 1.3%). Headline inflation was revised up to 2.2% y/y (from: 1.9%) in 2026 and core inflation to 2.2% y/y (from: 1.9%). Markets reacted by sending front-end rates higher and EUR/USD rose on the hawkish staff projections. We note that the inflation projections are on the high side compared to our own, market pricing, and consensus expectations (see chart 2). Hence, we think there is a good chance that the ECB would end up disappointed on inflation in 2026, which should reduce expectations for hikes. While we think the forecasts are optimistic, the staff projections do nevertheless cement the view in the ECBs that they are in a good place with no need for imminent rate cuts.

During the press conference Lagarde was asked whether it was more likely that the next move would be a hike relative to a cut, referencing Schnabel’s recent interview. Lagarde did not answer the question directly and instead said that the consensus in the ECB was that all options remained open and that they stick to a meeting-by-meeting approach. In our view, this highlights that the consensus in the Governing Council is clearly less hawkish compared to Schnabel especially due to diverging views on the inflation outlook. At the same time, Lagarde also said that she would not give forward guidance by commenting on market pricing given that uncertainty is still very high. The fact that she is referring to high uncertainty implies that staff projections play a smaller role in deciding current policy changes like we saw in September. Lagarde’s descriptive comments on the economy and decision not to agree with Schnabel’s view led to a fading of the initial rise in rates following the hawkish staff projections. Hence rates ended the meeting flat and EUR/USD little changed as we expected.

We maintain our call that the ECB will leave the deposit rate unchanged at 2.00% throughout both 2026 and 2027. Higher than expected activity and wage growth has reduced the need for cuts in 2026 while our expectations of a clear undershooting of inflation the comings years should keep the ECB from hiking in 2027. We have liked our paying bias the past months also supported by recent data. While we cannot exclude that rates can continue to move slightly higher in the very near-term, we are increasingly attentive to the risk-reward skew on a 1–3-month basis to start to favour receivers.

Summary

The November CPI report creates more questions than answers about the recent pace of price growth. Consumer prices rose 2.7% in the 12 months ending in November, materially below our expectations for a 3.0% gain. The core index similarly fell short of expectations, advancing 2.6% over the past 12 months versus our forecast for a 2.9% increase. The stark miss comes on the heels of the longest-ever government shutdown that led the BLS to skip October data collection and not begin the November collection process until the middle of the month.

As such, we caution against reading too much into today's report. The November data suggest core prices rose 0.16% over the past two months, or an average of 0.08% per month. For comparison, the core index has increased at an average monthly pace of 0.25% this year. CPI data are not revised, and as a result we believe the data will be noisy for at least another month or two. A bounce back in prices in the December CPI report to be released on January 13 is probably coming. Through the noise, we believe inflation is slowing on trend, even if today's reading overstates the magnitude of the slowdown. We remain comfortable with our current projection of rate cuts from the FOMC in March and June of next year.

Inflation Is Slowing, but Not This Much

The government shutdown appears to have caused issues in the consumer price inflation data collection process. The two-month percent change in headline and core CPI were 0.20% and 0.16%, respectively, meaningfully below our forecasts of 0.45% and 0.48%. For context, the two-month change in headline and core CPI from July to September was 0.69% and 0.57%, respectively. This pushed the year-ago pace of headline and core CPI inflation down to 2.7% and 2.6%, a steep decline from 3.0% and 3.1% in September. The slowdown was broad-based across nearly all categories, adding to our suspicions that the shutdown's disruptions caused issues in the data. Data collection didn't begin until the second half of November, which may have skewed the sample more than we anticipated.

Food prices rose 0.06% over the past two months, a significantly slower pace than the 0.25% average monthly rise this year. Taking a step back from this report's noise, forward-looking measures of food-related commodities have slipped into deflation territory, which, when coupled with recent rollbacks on select food tariffs, point to a disinflationary trend in food inflation even if not to the extent implied in today's report. Energy was the lone category that came in reasonably near expectations, rising 1.08% over the past two months and up 4.1% year-over-year in November. This is likely due to gasoline prices being collected from a non survey source and thus being one of the few sub-categories the BLS was able to publish price data for in October. New and used autos prices were also produced under their usual methodology and came in a touch stronger than we expected.

Core goods prices rose only 0.06% between September and November, compared to a 0.15% average monthly rise headed into this report. Similarly, core services rose only 0.16% over the past two months. Shelter inflation was a prime example of the puzzlingly weak inflation data in core. Owners' equivalent rent rose 0.27% over two months, while rents rose just 0.13%. The weak outturn lead these categories down to 3.4% and 3.0%, respectively, on a year-over-year basis, breaking away from their recent trends (chart). In short, we are not putting much weight on the details of this report, and we anticipate a bounce back in the December reading to be released on January 13.

While materially softer than expected, we think the collection issues around this particular report means it will do little to change Fed officials' current views on inflation. Inflation pressures are softening, but not to this degree. With the Fed waiting for (reliable) inflation data before cutting rates again, today's data add to our conviction that the FOMC will be on hold at the January meeting. That said, data issues aside, our belief is that inflation is slowing on trend, even if today's print overstates the slowdown. When paired with the softening in the labor market, we remain comfortable with rate cuts in March and June of next year. At that point, we believe cleaner data will give the Committee more confidence that inflation is leveling off and will soon be moving back toward 2%.

• The Bank of England cut the Bank Rate to 3.75%.
• The vote split was 5-4, as expected.
• The potential of further easing hinges a lot on the continuance of the recent promising disinflation.
• The market reacted by trading EUR/GBP lower and Gilt yields a bit higher.
• We continue to expect one final rate cut to 3.5% in April.

The Bank of England (BoE) cut the Bank rate by 25bp to 3.75% in line with our expectation and market pricing. The vote split was 5-4 (cut vs. keep), which was also in line with consensus. The meeting was one of the small ones and thus included no new economic outlook.

Following the soft November inflation print yesterday, there was a chance of a bigger majority voting for a rate cut, which would have been a dovish sign. Deputy governor Lombardelli would have been the most obvious candidate, but she continued to vote for keep. The four dissenters (Lombardelli, Greene, Mann and Pill) refer to continued too high wage pressures and are not convinced that the monetary policy stance is meaningfully restrictive. That said, they acknowledge the recent progress in disinflation and Greene explicitly states that she believes inflation risks have shifted to the downside. Thus, while the MPC remains split, the hawkish voters have become less hawkish since the November meeting. Governor Bailey's remarks are quite balanced, and he and deputy governor Breeden (most neutral leaning voters) highlight that more disinflationary signs are needed to cut rates further.

BoE call. We think Governor Bailey will take a cautious approach and listen to both the dovish and the hawkish camp when timing the next rate cut and that a majority will vote for a final rate cut at the April meeting.

Market reaction. Gilt yields traded a couple of basis points higher, and EUR/GBP lower as the chance of a more dovish cut was priced in ahead of the meeting.·

Markets

The Bank England as expected cut its policy rate by 25 bps to 3.75%. Despite the recent softening in inflation, the decision was made by the smallest of margins in a 5-4 vote. Governor Bailey was the swing voter to tilt the balance. In this respect, the message from the decision was a bit more ‘hawkish’ than some in the market anticipated. The BoE assesses that the risk from greater inflation persistence has become somewhat less pronounced, while the downside risk to medium term inflation from weaker demand remained. The central bank assesses that the restrictiveness of monetary policy had fallen as the Bank Rate had been progressively reduced, making judgements on further easing becoming a closer call. The minutes showed that members continued to place different weights on the main risks to inflation. However, even comments from some of the dissenters suggest that they also acknowledge the improvement in the disinflationary dynamics. The central bank overall concludes that the Bank Rate is likely to continue on a gradual downward path. In the wake of the decision, markets slightly delayed the timing a next cut (April no longer fully discounted). Still we see some room to err on the dovish side of expectations in case of milder inflation and labour market readings. UK ST bond yields are rising by up to 3 bps (2-y). The 30-y gilt yield eases 1 bp. Sterling again whipsawed/rebounded with EUR/GBP declining from the 0.8785 area to currently 0.875. The EUR/GBP 0.8720 area remains a strong support/resistance for sterling.

The ECB as expected left its deposit rate unchanged at 2%. The policy statement and the new staff forecasts brought few surprises. The ECB raised growth forecasts for the period 2025-2027 to 1.4%-1.2%-1.4% from 1.2%-1%-1.3% with 2028 growth projected at 1.4%. Also core inflation was slightly upwardly revised over the 2026-28 horizon (2.2 %-1.9%-and 2%) mainly as staff sees service inflation declining more slowly. Overall, the central bank still sees inflation stabilizing at the 2% target in the medium term. During the press conference Chair Lagarde maintained all optionality and didn’t give any guidance on the timing or even direction of a next step. The impact on EMU yields was limited. German Bund yields are changing less than 1 bp. After ceding some ground earlier in the session, EUR/USD rebounded back to the 1.174 area, mainly due to softer US CPI.

The BLS released US November CPI inflation data. Due to the government shutdown, the BLS was unable to collect October data and make M/M-comparisons. Still November inflation showed an unexpectedly sharp decline from September (headline 2.7% and core 2.6%, both from 3%). Even as some statistical issues might still be in play, the data should gave dovish oriented Fed members some comfort that there is room for follow-up easing in Q1 2026 especially if accompanied with soft labour market data. US yields today decline between 5 bps (5-y) and 3 bps (30-y).

News & Views

The Swedish Riksbank (RB) left its policy rate unchanged at 1.75% and strengthened the signal that is expected to remain at this level for some time to come. The forecast for the policy rate envisions a first rate hike by end 2027. Swedish inflation developed in line with the September forecast and approached the 2% target. The updated CPIF-path plots average core inflation rates of 2.7%-0.9%-1.7%-2.8% for the 2025-2028 period, virtually unchanged from September. In the meantime, growth has been higher and economic activity is assessed stronger. The situation in the labour market remains weak, but there are signs it is beginning to improve. RB raised its 2025-2027 growth path 1.5%-2.9%-2.5% with the first indication for 2028 at 1.2%. Swedish assets are unmoved with EUR/SEK at 10.90.

The Norges Bank (NB) held its key rate steady at 4%.While NB isn’t in a hurry to reduce it, projections still envision a lowering in the course of 2026 if the economy evolves as projected. The forecast is consistent with 1-2 rate cuts next year and a further reduction to somewhat above 3% towards the end of 2028. The assessment is little changed from September with a weaker krone (raising inflation expectations) and a little more spare capacity in the economy balancing each other out. The outlook for underlying inflation is virtually unchanged with CPI ATE expected to remain sticky, averaging 3.1% this year, 2.7% in 2026, 2.4% in 2027 and 2.2% in 2028. Mainland GDP forecasts for the 2025-2028 period stand at 1.6%-1.3%-1.3%-1.4% from 2%-1.5%-1.3%-1.3% in September. The Norwegian krone recovers part of this week’s (oil-induced) losses as the Norges bank remains reluctant to rapidly return to rate cuts. EUR/NOK falls back to 11.95 after testing 12 support earlier this week.