New Zealand’s BusinessNZ Performance of Services Index (PSI) was 50.9 in January. This compared with 51.5 in the previous month.
A PSI reading above 50 indicates expansion in the services sector. A reading below 50 indicates contraction.
Services Sector Growth Slows
The latest services index shows the New Zealand economy is still growing, but the pace has clearly slowed from December’s 51.5 reading. This dip to 50.9 suggests that the high interest rates from last year are starting to bite into business activity. We see this as a key indicator that the economic momentum we saw in 2025 is fading.
This data makes the Reserve Bank of New Zealand less likely to raise interest rates at its next meeting. With recent inflation figures showing a gradual decline to 3.5% and unemployment ticking up to 4.1% at the end of last year, the case for more hikes is weakening. We should consider buying New Zealand dollar (NZD) put options or shorting NZD/USD futures, anticipating a move lower.
The interest rate markets will likely react by pricing out any remaining chance of a rate hike this year. We expect traders to adjust their positions, leading to lower yields on short-term government bonds. This is a good environment for positioning in interest rate swaps that bet on the central bank holding rates steady, or even cutting later in the year.
For the local stock market, this slowdown is a headwind for corporate earnings, especially in consumer-facing service sectors. Looking back at the market’s sensitivity to economic slowing in 2025, we anticipate some weakness in the NZX 50 index. Traders could look at buying put options on the index or specific service-sector stocks as a hedge against a potential downturn.
We should also look at the New Zealand dollar relative to the Australian dollar. Australia’s latest inflation print came in slightly higher than expected at 3.7%, suggesting their central bank may have to stay hawkish for longer. This divergence strengthens the case for a weaker NZD/AUD, making it an attractive pair to short.
