Kia ora,

Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

Today we start with news the fall of the USD is driving some renewed realignments.

To start we should note that gold has surpassed US Treasuries as the world’s largest reserve asset globally for the first time in 30 years driven primarily by sharply rising prices, and some aggressive buying by some (mainly autocrat) central banks.

Elsewhere in the real economy, the private US ADP employment report for December rose by +41,000 jobs following a revised -29,000 retreat in November. The December result was slightly less than forecasts of a +47,000 gain. This huge sample has been in a yo-yo pattern since mid-2025 and over that six month period they have reported a net gain of +129,000 - but almost all that gain was in August. We get the December non-farm payrolls report on Saturday, and it is expected to show a gain of +60,000.

US job opening shrank in November. They fell by -303,000 to 7.146 mln in the month, the lowest since September 2024 and well below market expectations of a good gain.

The ISM Services PMI rose for a third consecutive month in December, well above what was expected due to more positive holiday season trading. It was their best services sector PMI since October 2024, and broad-based. This was quite a different view to yesterday's S&P Global services PMI which told the inverse story.

Meanwhile the US released catch-up factory order data, delayed by their shutdown, and a desire to make bad data seem less relevant. This report for October revealed orders fell +1.3% from September, to be just +1.6% higher than a year ago, far less than current price inflation. A driver of this pullback has been lower aircraft orders.

Meanwhile, the NY Fed's global supply chain pressure index jumped rather more than expected in December, a clear signal that American importers are feeling rising stress - although nothing like its pandemic stress.

In Canada, their widely-watched Ivey PMI turned back to an expansion in December, and they reported lower cost pressures, even if they remain elevated.

In China, their central bank said it will cut the reserve requirement ratio and interest rates in 2026 to keep liquidity up with a loose monetary policy.

Meanwhile their foreign exchange agency explicitly committed to “effectively guaranteeing” fx access for all market players, a move to reassure businesses of currency liquidity amid the global pressures.

And China's FX reserves rose to US$3.358 tln in December, a +4.9% or +US$160 bln change from a year ago, boosted in part by a falling USD. But next week, China will announce a +US$1 tln trade surplus in the same period, so it does make you wonder where the difference has gone. Clearly there are large capital outflows. China's gold reserves rose more than +55% in 2025, largely due to the rise in price. But they also added volume from local mining.

Another consequence of this rise in reserves and the swelling trade surplus, is that the yuan is appreciating, especially against the USD (but not significantly against the AUD or NZD). However the appreciation against the USD is crucial because most of the world's trade in conducted or priced in USD.

Taiwan said its CPI rose +1.3% in December from a year ago, and its PPI fell -2.6% on the same basis.

In Europe, they said their CPI was up +2.0% in the euro area in December, a slight dip from November. So it is at the ECB target now. The range was from +0.7% in France to over +3.0% in front-line eastern countries. Germany was +2.0%, Spain +3.0% and Italy +1.2%.

Australia’s CPI inflation slowed to 3.4% in November from a year ago, down from 3.8% in October. This was a bigger fall than expected, but it is still above the RBA’s 2–3% target. Still, this will ease the pressure on the RBA and push back any thought of rate rises. Housing was up 5.2%, food by 3.3%, and transport by +2.7%. As the electricity subsidy rollback fades, that is reducing pressure overall.

Australian building consents rose sharply in November, up +15.2% to 18,406, a rise dominated by apartment approvals.

And while we complain about high prices for dairy products and meat because of our low dollar and high international demand, get ready for much higher fish prices too. The West Australian government has permanently closed it's snapper fishery, and fish wholesalers there are now flying in New Zealand snapper to fill the shortage.

The UST 10yr yield is now just under 4.14%, down -4 bps from this time yesterday. The key 2-10 yield curve is now at +67 bps.

The price of gold will start today at US$4458/oz, and down -US$29 from yesterday. Silver is down -US$4 to US$78/oz.

American oil prices are down -US$1.50 USc from yesterday at just under US$56/bbl, while the international Brent price is now at just under US$60/bbl. These are both near five year lows.

The Kiwi dollar is little-changed from yesterday, still at just over 57.8 USc. Against the Aussie we are up +10 bps at 85.9 AUc. Against the euro we are also up +10 bps at 49.5 euro cents. That all means our TWI-5 starts today just over 61.8, and actually little-changed yesterday.

The bitcoin price starts today at US$91,276 and down -1.3% from this time yesterday. Volatility over the past 24 hours has again been modest at just on +/- 1.4%.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again tomorrow.

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