The NZ swap curve steepened a little on Friday.
US 10-year yields ended the week above 2.03%.
Friday’s Q3 CPI release came and went without too much response from the rates market. It was fractionally above expectation, but at 0.4% y/y it was still some way below the RBNZ’s target band. However, it confirms that inflation is bottoming, albeit at a very low level.
We still see another OCR cut by year’s end, although, at the margin, we think the details of the Q3 data reduce the odds of such. We formally have one remaining 25 bp OCR cut in for the October meeting. However last week’s data suggest the hurdle for the OCR to go sub-2.50% just got a bit higher. The market continues to price around a 2.45% trough in the OCR by mid next year.
On Friday night, in the backdrop of positive equity markets, US 10-year yields pushed modestly higher. From intra-night lows of 2.00%, yields ended the week above 2.03%.
Today, market sentiment will likely be dominated by the release of a swathe of Chinese data this afternoon. A poor set of releases would likely apply some downward pressure to NZ yields.
In a relatively quiet data week domestically, the Wed morning dairy auction will likely steal the limelight, with potential to impact market expectations for further RBNZ easing.
Kymberly Martin is on the BNZ Research team. All its research is available here.
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