Markets will quickly shift attention after MPS, especially to Aussie jobs report. Elsewhere, general sentiment improves

By Kymberly Martin

NZ swaps closed up 2-4 bps yesterday.

Overnight, US yields pushed higher and then faded.

In the absence of domestic data releases yesterday, NZ swaps took their cue from the previous night’s offshore move higher in yields. NZ 2-year swap closed up 2 bps at 2.84%.

Ahead of this morning’s RBNZ meeting the market is pricing just under a 90% chance of a 25 bps cut and that the OCR will cut to around 2.56% by Q1 next year.

We expect a cut today.

We also anticipate the Bank’s language and 90-day bank bill track will hint at further cut(s) if necessary. However, we do not anticipate an aggressively dovish message. This may limit the market’s response to today’s cut.

Overnight, general sentiment continued to improve, as Asian and European equities posted solid gains. US 2-year bond yields pushed up to their highest level since April 2011, above 0.76%, but have subsequently subsided to 0.74%. US 10-year yields made intra-night highs above 2.25%. But they have fallen back below 2.20% after an auction of US 10-year bonds, and a pullback in the global oil price, in the early hours of this morning.

Overnight, the Bank of Canada left its cash rate unchanged at 0.50%.  Its statement said that household spending, an improving US economy and lower CAD were helping to cushion the economy from the impact of lower commodity prices. The Bank felt that “the stimulative effects of previous monetary policy actions are working their way through the Canadian economy.”

This morning it is all eyes on the RBNZ. In the early afternoon the release of the AU employment report will then steal the limelight. This has potential to influence market pricing for future RBA activity with some spill-over to the NZ market. Currently the market prices slightly more than one 25 bps cut from the RBA by mid next year.

Kymberly Martin is on the BNZ Research team. All its research is available here.