By Kymberly Martin
In the last day of NZ trading prior to the Easter break, the NZ swap curve closed lower and flatter, in the wake of the soft dairy auction and offshore moves.
NZ 2-year swap has traded below 3.50%, for the first time since early-February.
The 2-10s curve has flattened back to 20 bps, now mid the range it has maintained since the start of the year.
With US 10-year yields trading at 1.90% this morning, one could be forgiven for thinking that not much has happened offshore over the Easter break.
However, current levels disguise some dramatic moves. After the disappointing US payrolls report (early Sat morning NZT), US 10-year yields gapped from 1.90% to touch lows of 1.80%.
However, trading last night reversed the entire move. US 10-year yields have risen as the WTI oil price has rebounded by an impressive 6%. While 10-year yields are back trading at 1.90%, the rise in US short-end yields has been more muted. Fed fund futures price a Fed funds rate at just 0.35% by year-end.
Today, in the absence of domestic data releases it will be all eyes on the RBA’s meeting.
The market prices a high probability of a cut from the Bank today.
Our NAB colleagues think a cut today is possible but place greater probability on the next cut being at the May meeting.
The direction of any subsequent moves by AU short-end yields will likely be mimicked by NZ yields. The NZ market more than fully prices an RBNZ rate cut within the year ahead.