By Kymberly Martin
On Friday, NZ markets followed offshore moves. Yields fell 3-6bps in pre-positioning ahead of the night’s US payroll data.
NZ 2-year swap closed the week at the familiar level of 2.92%, with the 2-10s swap curve around 110bps.
Heading into this Thursday’s RBNZ meeting, the market prices just over 25bps of OCR hikes for the coming 12 months.
Officially we expect a first hike in March next year. However, we do not anticipate the RBNZ’s tone this week to significantly disturb current market pricing. In recent communications it has leaned toward keeping the OCR lower for longer.
On Friday night, US 10-year bond yields initially responded to the mixed messages in the US employment report with pronounced volatility.
Later US 10-year yields rose to end the week at 2.17%. For now, we continue to see US 10-year yields in a range marked by highs on yield in the vicinity of 2.25%. By year-end however, we see yields at 2.50%.
Over the weekend, much of a slew of May Chinese data was in line with expectation. The notable exception was import and export data that came in well below expectation (exports 1.0% vs. 7.4% expected; imports -0.3% vs. 6.6% expected).
This may limit any rise in NZ long yields that otherwise might follow from the moves seen offshore on Friday night.
For NZ rates markets, Thursday’s RBNZ meeting will be the key focus this week. Ahead of this, today’s manufacturing sales data should pass without drama.
Today’s QV house price data is likely to confirm higher house price inflation, a perennial concern for the RBNZ.
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