By Kymberly Martin
NZ rates markets showed very little response to yesterday’s CPI data that came in slightly below expectation at 0.7%y/y.
This is a fourth consecutive quarterly reading below the RBNZ’s 1-3% target range.
NZ 2-year and 5-year swap closed at 3.22% and 3.99% respectively, still close to 20bps below their early-month highs.
In the near-term demand for swap may be fairly even-sided. Paying demand from the ‘real’ economy should continue to be steady.
Receiving demand to benefit from significant ‘carry’ benefits (5bps/month for 2-year), should also be seen. In the absence of any dramatic developments offshore this should keep NZ rates fairly range-bound ahead of next Thursday’s RBNZ meeting.
Across the Tasman, Australian rates markets responded to yesterday’s RBA Minutes by reducing expectations for rate cuts in the year ahead. However, Our NAB colleagues believe the outlook still provides scope for further easing.
On balance, they still expect the RBA to cut in August, due to weaker activity indicators, against a benign inflation environment. Next week’s AU Q2 CPI data will therefore be important to the decision.
German 10-year bonds drifted off from above 1.58% to sit at 1.55% this morning. US equivalent bonds traded sideways around the 2.53% level.
Today there are no domestic data releases scheduled. The Bank of Japan and Bank of England will issue Minutes from their most recent meetings.
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