Local markets took a breather after Thursday’s post-RBNZ rally, with NZ interest rates only modestly changed. US rates dipped lower across the board.
The short-end of the local curve extended its rally, with the 2-year swap yield shedding a further 2 bps, on top ofThursday’s 9 bps.
The 2-year swap is now at its lowest level since the first trading day of 2013. Long-end yields drifted higher, with the 2s-10s curve steepening 4 bps to 88 bps.
US interest rates slipped lower in a relatively subdued trading session on Friday. The rally was underway even before the University of Michigan’s closely-watched consumer sentiment survey was released. The chunky decline in headline consumer sentiment in August likely has its roots in the significant equity market decline in that month. Analysts anticipate a bounce in the next reading. US bond yields closed 3 bps lower across the curve.
Locally, the week is dominated by Thursday’s Q2 GDP report, where we expect a 0.8% q/q gain, with risks skewed to lower.
However, the main influence on NZ rates could well stem from offshore, with the highly-anticipated September FOMC decision (with attendant press conference) due early on Friday morning.
The market prices just a 28% chance of a move, but analysts are evenly split. A Bloomberg poll shows that 37 analysts expect a rate hike, while 36 expect no change.
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Raiko Shareef is on the BNZ Research team. All its research is available here.
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