The December 2025 Terms of Trade (ToT) release for New Zealand revealed a -2.10% quarterly contraction, a sharp reversal from the 4.20% increase recorded in September 2025. This print fell short of the 0.30% market expectation, signaling a sudden deterioration in export prices relative to imports. The data, sourced from the Sigmanomics database, highlights the growing pressure on New Zealand’s external sector amid fluctuating commodity markets and global demand shifts.

Drivers this month

• Commodity price softness, especially in dairy and meat exports, weighed heavily.
• Rising import costs due to higher energy prices and supply chain disruptions.
• Weaker global demand from China and Europe dampened export volumes.

Policy pulse

The ToT decline complicates the Reserve Bank of New Zealand’s (RBNZ) inflation targeting, as weaker export earnings may slow growth but imported inflation pressures persist. The print suggests a cautious stance on further rate hikes, balancing inflation control with growth risks.

Market lens

Immediate reaction: NZD/USD slipped 0.40% within the first hour post-release, while 2-year government bond yields edged down 5 basis points, reflecting risk-off sentiment and growth concerns.

New Zealand’s Terms of Trade is a critical macro indicator measuring export prices relative to import prices. The latest -2.10% QoQ reading contrasts with the 12-month average of 1.90%, underscoring a notable shift in external competitiveness. Historically, ToT swings have correlated strongly with GDP growth and the NZD exchange rate.

Historical comparisons

• September 2024: 2.10% QoQ, supporting a robust export sector and NZD appreciation.
• March 2024: -7.80% QoQ, the largest quarterly drop in recent years, linked to global commodity shocks.
• June 2024: 5.10% QoQ, a rebound driven by dairy price recovery and supply constraints.

Monetary policy & financial conditions

The RBNZ’s tightening cycle since mid-2024 has aimed to curb inflation, but the ToT downturn introduces uncertainty. Inflation remains sticky due to import costs, while export earnings face headwinds. Financial conditions have tightened, with mortgage rates rising and credit growth slowing.

Fiscal policy & government budget

New Zealand’s fiscal stance remains moderately expansionary, with recent budgets focusing on infrastructure and social spending. However, weaker ToT pressures export tax revenues, potentially constraining fiscal space if the trend persists.

Drivers this month

• Export price index fell 3.50% QoQ, led by dairy (-4.20%) and meat (-3.80%).
• Import price index rose 1.50% QoQ, driven by oil (7.10%) and machinery (2.30%).
• Global supply chain bottlenecks persisted, adding cost pressures.

Policy pulse

The RBNZ faces a complex environment: ToT weakness may dampen growth, but imported inflation remains elevated. This dynamic supports a cautious monetary policy approach, possibly pausing rate hikes to assess evolving risks.

Market lens

Immediate reaction: NZD/USD depreciated 0.40%, while 2-year bond yields fell 5 bps, reflecting risk aversion and growth concerns. Commodity-linked equities also saw modest declines.

Looking ahead, New Zealand’s Terms of Trade trajectory depends on global commodity prices, trade relations, and domestic policy responses. The following scenarios outline potential paths:

Scenario analysis

• Bullish (30% probability): Commodity prices rebound, especially dairy and meat, lifting export prices by 3-5% QoQ. ToT improves, supporting NZD strength and growth.
• Base (50% probability): Modest recovery in export prices offset by persistent import cost pressures. ToT stabilizes near zero change, with balanced growth and inflation risks.
• Bearish (20% probability): Prolonged global demand weakness and supply shocks deepen ToT decline by 3-5% QoQ, pressuring growth and fiscal revenues.

External shocks & geopolitical risks

Ongoing geopolitical tensions, particularly in Asia-Pacific trade routes, and energy market volatility pose downside risks. New Zealand’s export exposure to China and Australia makes it vulnerable to external shocks.

Structural & long-run trends

Long-term ToT trends reflect New Zealand’s commodity export reliance and evolving trade partnerships. Diversification efforts and value-added exports could mitigate volatility over time.

The December 2025 Terms of Trade contraction signals a challenging external environment for New Zealand. While not as severe as the March 2024 plunge, the negative print disrupts recent positive momentum. Policymakers must balance inflation control with growth support amid external uncertainties. Fiscal prudence and structural reforms remain vital to enhance resilience. Market participants should watch commodity prices, global demand, and RBNZ signals closely in coming months.

Key Markets Likely to React to Terms of Trade QoQ

Terms of Trade shifts strongly influence New Zealand’s currency, bond yields, and commodity-linked equities. The NZD/USD pair typically reacts swiftly to ToT surprises, reflecting changes in export competitiveness. Dairy and agricultural stocks also track ToT trends closely. Additionally, global energy prices and geopolitical developments can amplify market moves tied to ToT fluctuations.

• NZDUSD – Directly impacted by export-import price shifts affecting currency valuation.
• NZX50 – New Zealand’s benchmark equity index, sensitive to export sector performance.
• FGL – Fonterra Co-operative Group, a major dairy exporter linked to ToT movements.
• AUDNZD – Reflects relative economic conditions and trade dynamics with Australia.
• BTCUSD – While less directly linked, Bitcoin often serves as a risk sentiment barometer amid global shocks affecting ToT.

FAQs

What is the Terms of Trade QoQ for New Zealand?

The Terms of Trade QoQ measures the quarterly change in export prices relative to import prices. The latest reading is -2.10% for December 2025.

How does the Terms of Trade affect New Zealand’s economy?

Changes in ToT influence export competitiveness, GDP growth, inflation, and the NZD exchange rate, impacting overall economic health.

What factors drive fluctuations in New Zealand’s Terms of Trade?

Commodity prices, global demand, supply chain conditions, and geopolitical risks are key drivers of ToT volatility.

Takeaway: New Zealand’s Terms of Trade reversal in December 2025 highlights external vulnerabilities. Policymakers and markets must navigate a complex outlook balancing inflation, growth, and global risks.

Updated 12/1/25