NZ swaps closed little changed yesterday, while NZGB yields pushed 2-3 bps higher.
Overnight, US 10-year yields traded between 2.26% and 2.30%.
Yesterday’s data showing NZ net migration remains at historic highs will not be lost on the RBNZ. But the implications for monetary policy are not clear.
A persistently stronger than expected trend adds upside risks to GDP growth forecast. It also adds to the demand side of supply-demand imbalances in the housing market, contributing to house price inflation pressures. However, it also suggests that immigration may more than satisfy employment growth, resulting in a rising unemployment rate, and/or contained wage pressures.
The market continues to price around a 50% chance of a December cut, and a 2.41% trough in the OCR by mid next year. Pricing for next year is a fair representation of current risks, but we maintain that the RBNZ has a high hurdle to cutting below 2.50%. It would likely take a severe global shock, or negative domestic development, such as a particularly harsh impact from the current El Nino weather pattern.
Overnight, German yields moved higher after data showed German and Eurozone manufacturing PMI pushing further into expansion. From 0.45%, German 10-year yields now trade at 0.53%. By contrast, the US manufacturing PMI slipped a bit in November, disappointing expectations. This helped US 10-year yields return to trade at 2.26% from intra-night highs above 2.29%.
Tonight, look out for a speech from RBA’s Stevens and the second reading of US Q3 GDP.
Kymberly Martin is on the BNZ Research team. All its research is available here.
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