By Kymberley Martin
NZ yields closed virtually unchanged on Friday.
On Friday night, after a little volatility, US 10-year yields pushed up to end the week at 2.59%.
Heading into this Thursday’s RBNZ meeting the market prices just 50bps of OCR hikes by year-end and less than 150bps over the coming two years.
We anticipate the Bank will raise the OCR by 25bps this week; build itself some flexibility into its near-term rate path, partly dependent on the behavior of the NZ TWI; but remain firmly committed to raising the OCR a further 200bps (to 5.00%) over the coming two years.
In terms of market response, any hint the RBNZ may consider ‘pausing’ soon, could case short-term yields to slump, even if the RBNZ maintains its medium-term commitment to ‘normalise’ rates.
For this reason, the RBNZ will likely tread carefully to avoid undermining the message of rate ‘normalisation’ it has thus far tried so hard to spread.
On Friday night, on the release of US payrolls data, US 10-year yields rapidly traded from 2.57% toward 2.60%, before plunging toward 2.53% as the market digested the data.
Trading later settled down and yields steadily crept higher to end the week at 2.59%.
NZ yields may open a little higher today, following Friday night’s moves. Otherwise it’s a fairly quiet start to the week domestically.
Only NZ wholesale trade is scheduled for release. Local highlights will come on Thursday with the RBNZ’s meeting and the AU employment report.
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