In July 2025, the New Zealand Business Services Index (BSI) stood at 48.9. This marks an increase from the previous index figure of 46.
The previous figure for June 2025 was later revised upward from its initial value of 46 to 47.3. This suggests an improvement in business services performance over the period observed.
Index Improvement Suggests Easing Downturn
The recent New Zealand Business Services Index, which rose to 48.9 for July 2025, suggests the downturn in the services sector is easing. Although the index remains below the 50-point mark indicating contraction, this improvement from the revised 47.3 prior shows a slowing decline. We see this as a sign that the sector may be approaching a bottom after a prolonged period of weakness.
This better-than-expected data reduces the immediate pressure on the Reserve Bank of New Zealand to cut the Official Cash Rate from its current high of 5.50%. Given that the Q2 2025 inflation rate was still stubborn at 3.4%, the RBNZ will likely wait for more conclusive evidence of a slowdown before signaling any policy pivot. Therefore, we should consider pushing out expectations for rate cuts, possibly adjusting interest rate swap positions to reflect a first move in Q1 2026 rather than late 2025.
For the New Zealand dollar, this development is moderately supportive, especially against currencies where central banks are more dovish. A delay in RBNZ rate cuts increases the NZD’s yield advantage. We could look at buying short-dated NZD/AUD call options, as the cross has been consolidating around 0.9250 and this data could provide a catalyst to break higher.
Economic Stability Indicated by Services and Manufacturing Data
This slight improvement in services, combined with the manufacturing PMI which also showed a modest lift to 47.8 last month, paints a picture of a stabilizing economy. While not a signal of strong growth, it does lower the tail risk of a deep recession that had been priced into the market earlier in 2025. This may warrant cautiously selling out-of-the-money put options on the NZX 50 index, as underlying corporate conditions appear to be troughing.
