Switzerland continues to favour further talks, and has stepped up its efforts to bring the US back to the negotiating table to mitigate the severe impact of the tariffs on certain sectors. Beyond the tariffs, we will be keeping an eye on the second estimate of Q2 GDP, out on Thursday – the flash reading showed weak growth.
The KOF leading indicator, out on Friday, will also be worth watching, albeit these data points are losing some of their usefulness given the rapidly changing and unpredictable trade environment. We think that Switzerland will most likely avoid a recession, but it seems increasingly likely that growth will be slower this year than in 2024.
AUD
The Aussie dollar was one of the better performers in the G10 last week, and posted gains of more than 1% against its New Zealand counterpart following the dovish policy announcement from the RBNZ. Domestic macroeconomic news was relatively encouraging, as the latest PMI figures from S&P pointed to a solid rebound in growth in August. The composite index leapt to 54.9 in August, comfortably above the level of 50 and its strongest reading since April 2022.
NZD
This impressive rebound in business activity should take pressure off the Reserve Bank of Australia from cutting rates again. We remain confident that the bank will pause its easing cycle at its next meeting in September, and markets are now pricing in terminal rate just above 3%.
The Reserve Bank of New Zealand struck a dovish note following its August policy meeting last week. Rates were slashed by another 25 basis points, and the bank was unexpectedly explicit in saying to markets that further easing was likely on the way. The bank noted that the economy had stalled in the second quarter, while warning over the growth risks posed by the tariffs and economic policy. Policymakers also appear confident on inflation, and seem to be looking through the jump in the first quarter CPI print. The kiwi currency fell sharply following the announcement, and briefly slumped below the 0.58 level on the US dollar. Further downside appears possible in the near-term as markets continue to brace for at least a couple more RBNZ rate cuts, and a cash rate of 2
