March Madness truly kicked off in full swing last week. Despite no major local data releases, it was the news of Adrian Orr’s abrupt resignation along with swings in US trade policy that kept us busy.

After 7 years in the role, the now former RBNZ Governor, Adrian Orr, stood down from his post last Wednesday. The departure comes three years ahead of completing his second term. We were fiercely opposed to many of the RBNZ’s actions in recent years, from the near implementation of negative rates (which would not have worked), to the over stimulation and then heavy-handed hikes. Too much both ways. We’re moving on.

Deputy Governor Christian Hawkesby steps in as acting Governor until the end of the month. Hawkesby should be in the running for the big role, and is a safe pair of hands. From April 1, Finance Minister Nicola Willis, with recommendation from the RBNZ board, will appoint an interim Governor for up to 6 months. When thinking of who might come through as the next Governor a couple of names seem to be floating around the ring. Internally, Deputy Governor Christian Hawkesby and Assistant Governor Karen Silk are both seen as options. While externally, Dominick Stephens, who currently serves as the Chief Economic Advisor at the NZ Treasury, as well as John McDermott, the current Executive Director of Motu Economic and Public Policy Research, appear to be likely front runners. All great options.

For now, though, we wave goodbye to Adrian Orr. No one can deny that it was an incredibly difficult and unprecedented time. But perhaps the real kicker was the decline in communication and transparency from the Reserve Bank over Orr’s tenure. We look forward to a new governor as an opportunity for the Reserve Bank to improve its communication and transparency. We think it was fair to say the RBNZ was one of the most transparent in the world, and leaders in monetary policy… not today.

Questions have floated on what this means for the outlook of monetary policy. And the answer can be found simply by looking at the market’s reaction. Nothing. Ultimately, monetary policy decisions in New Zealand are made collectively by the monetary policy committee, based on forecasts done by the RBNZ’s staff. As such Orr’s departure is more of a political matter than an economic one.

The real driver in markets instead continues to be the moves out of the White House. In our last weekly, we wrote about how Trumps announcements seemed to hold a shelf life of mere hours. And that pattern has held true yet again. On Tuesday, Trump moved forward with imposing a 25% tariff on Mexico and Canada, alongside an additional 10% tariff on Chinese imports. These actions sparked swift retaliation from both Canada and China. Canada responded with a 25% tariff on $30bn worth of US imports – largely targeting US alcohol and home appliances. While China announced a 10-15% tariff across various agricultural imports from the US. Mexico also signalled plans to retaliate, with details to be announced over the weekend. But before we could even get there, come Friday morning, Trump had announced another one-month delay on tariffs for Canada and Mexico for goods shipped under North America's free trade pact. The pact only covers certain goods, so about 50% of US imports from Mexico and 62% from Canada may still face tariffs. Still, the delay was enough to pause retaliation from both countries.

But come April 2nd that may be a different story. That’s the day we’ll know whether these tariffs will be reinstated, as well as hearing more about Trumps plan on reciprocal tariffs. So, mark the date. But maybe do it in pencil. And keep an eraser close by.

Financial Markets

The comments below were provided by Kiwibank traders. Trader comments may not reflect the view of the research team.

In rates, Kiwi yields bobble in around their recent ranges

“A largely directionless week for Kiwi saw rates bobble up and down in the middle of their recent range. The 2 year was unchanged week on week, while the curve ended the week steeper as long end yields moved higher in sympathy with global moves.

The front end remains well anchored. The path for the OCR laid out by the RBNZ is still considered by the market as most likely to eventuate despite the surprise resignation of Governor Orr last week. Though there was a small lift in yields post the announcement.

In the long end, rates were a lot more volatile. Ongoing offshore geopolitical ructions flowed through to bond markets. This includes the on again off again tariff headlines and most dramatically, a proposal to remove German debt limits for defence and infrastructure spending that resulted in bonds selling off 30bps in one day.

This week sees a string of high frequency domestic data that will give some colour on state of the economy though unlikely to see a reaction from markets.” Matthew Crowder, Balance Sheet Manager – Treasury

In currencies, change in the air? Tariffs and geopolitics continue to drive currency markets

“The Kiwi dollar managed to find support in what was a fairly tumultuous week for financial markets. The on again/off again tariff loans continued to wreak havoc last week, particularly in equity markets, when the recent surge in value is put to the test under the true reality of tariffs, and the unknown impacts on growth remain on the horizon. The Kiwi dollar continues to trade in the 0.5550-0.5750 range, albeit closer to the top of the range. Opening the week at 0.5600, general upward momentum saw the Kiwi touch a high of 0.5760 on Thursday before falling away into the weekend. The US dollar was knocked as the uncertainties around US growth continue to weigh on the greenback. As reflection of investor nervousness, an across-the-board rally in US Treasuries from 2 – 30-year yields of up to 60bp from January highs have being squarely attributed to US growth outlook and not reduced inflation concerns. The Trump trade we saw earlier in the year is well and truly over, and now the dark side is looming for the US dollar. The Euro has started to outperform vs its peers as news around a defence alliance in the EU has boosted expectations of fiscal spending on defence from various countries. Germany has set up special EUR500billion fund for this purpose (as well as infrastructure). The rising Euro is pushing the Greenback lower, and the NZDEUR cross is now trading at a “Covid-blip” excluded 10-year low. Versus the Euro the Kiwi opened the week at 0.5387 and continued to track lower across the week into a low of 0.5252. In seemingly a blink of an eye, the major strong US Dollar currency dynamics recent years appeared to have flipped. We are starting to consider that perhaps a bottom in NZDUSD has now been seen in the 55’s, and that there may be further upside potential for the Kiwi versus the Greenback, but it is too soon to call it. A break of the 0.5550 – 0.5750 range holds the key to this argument." Mieneke Perniskie, Trader - Financial Markets.

Weekly Calendar

• Here at home, the latest price data should suggest inflation remains within the RBNZ's 1-3% target band, but price pressures are beginning to build. A range of monthly price indicators have printed slightly strong since the beginning of the year, particularly for imported goods and services given the weaker NZD. Food price inflation for example rose 1.9% in January. February may continue the trend. Nonetheless, inflation broadly remains under control.
• A slowdown in US inflation is expected in February. Consumer price inflation likely rose 0.3%, following a 0.5% lift in consumer prices the month prior. Annual headline is expected to fall to 2.9% from 3%. January's update showed stalling in some components of inflation whose earlier price resets led the initial disinflationary process. The US Federal Reserve will want to see new progress in February's update. Nonetheless, core inflation is expected to slow to 0.3% from 0.4% with the annual rate unchanged at 3.3%.
• China price data is due out this week and will likely show deflationary pressure. Consumer price inflation is expected to decline (-0.4%yoy) for the first time since January last year as holiday-related spending fades as well as a higher base of comparison. The producer price index is also likely to remain under pressure, with the index falling 2.1%yoy in February. Weak price pressure should prompt govt efforts to reflate the economy.
• UK economic activity likely barely registered growth in January. Following a larger than expected increase in December 2024, monthly GDP likely came in at 0.1% in January. Across the first quarter of GDP, economic activity is expected to expand about 0.2% before accelerating over the remainder of the year. Following a subdued period in 2024, private sector activity is expected to pick up over coming quarters.

See our Weekly Calendar for more data releases and economic events this week.