The Reserve Bank of New Zealand’s Chief Economist, Conway, commented on the potential impact of tariffs enacted by President Trump. Conway expressed hope that the measures introduced before a pause represent the most severe scenario.
In previous statements, Conway observed a shift in the balance of risks. He noted the risks have moved in a downward direction.
Overview Of Remarks
To quickly clarify the contents already laid out: Conway, who holds the position of Chief Economist at New Zealand’s central bank, has gone on record expressing measured optimism that the recent tariffs introduced by the United States administration may represent the peak in terms of their potential to disrupt economic conditions. His remarks suggest these might mark the worst point, and from here, pressures could either stabilise or gradually unwind. That hope, however, does not yet reflect any major moves or actions taken by the Bank; rather, it appears to be framed as a cautious observation.
Conway’s remarks on the changing risk environment indicate that expectations are softening. Where there may have earlier been some scope for interest rate increases if inflation were to accelerate, those assumptions are now adjusting. The downward movement in risk he mentions is relevant because it signals that economic headwinds are growing—possibly through trade restrictions, weaker global demand, or a slowdown in business confidence. This shift in perception aligns with a broader trend we’ve been watching across other commodity-linked economies.
Now, looking forward, it becomes even more important to focus less on headline moves and more on how volatility is priced in. Shorter-dated interest rate futures are already hinting at a market leaning towards easier monetary policy, and for good reason. With reduced momentum in cross-border trade and the dampening tone from central bank officials, the pricing of rate cuts has slowly built back in. There’s no clear indication that this move will be abrupt, but the general direction feels consistent.
Future Market Considerations
As volatility begins to settle around where rate expectations are headed, it becomes more appropriate to scrutinise carry strategies ahead of scheduled publications. Implied rates remain elevated in some segments, which offers a point where relative value can be assessed against realised movement. In particular, differences between domestic tone and external drivers are widening. If the exchange rate remains rangebound, we can afford to take on slightly more directional risk on the front-end, assuming liquidity conditions stay anchored.
But we ought not to be complacent. Back-end contracts are especially vulnerable to surprises in global policy signals, and even modest data surprises may carry more weight than usual. For this reason, we’ve placed more weight on calendar spreads rather than directional curve plays. Recent shifts in sentiment towards riskier assets have not yet filtered into fixed income with full force, so that gap in reaction time may offer short-lived windows to position around.
Watch for open-mouth operations, as they will likely remain the main way this central bank communicates its thinking until forecasts are formally updated. Observing how pricing moves in response will help us recalibrate within-session activity. Above all, the coming weeks may favour short-term reactivity over medium-term conviction. That’s a condition we haven’t been in for some time, and a useful one to treat with appropriate discipline.
