US Economic Strength Pushes Up New Zealand Mortgage Rates

The U.S. economy appears robust with declining inflation, strong consumer spending, and a relatively low unemployment rate of 4.2%. However, this economic strength is putting upward pressure on New Zealand mortgage rates. Wholesale interest rates tend to move in tandem globally, particularly for longer-term bonds, which affects New Zealand's funding costs.

Locally, the New Zealand labour market is stabilizing, with job growth across various industries. The Government's Pre-election Economic and Fiscal Update (PREFU) revealed a slightly improved fiscal position but a softer economic outlook. Unemployment and inflation are expected to remain elevated for longer, though the Government anticipates returning to surplus by 2029.

Global interest rates, particularly in the U.S., are influencing New Zealand's bond yields. The difference between the 2-year and 10-year bond rates has widened, indicating a steepening yield curve. While higher U.S. rates push up New Zealand's wholesale swap rates, the weaker Kiwi dollar is benefiting exporters and tourism operators.

Tourism in New Zealand has rebounded to pre-Covid levels, though spending remains modest. The weaker currency is making the country more attractive for foreign investment, providing a net benefit to the economy.