Eyes on NZ CPI with markets ready to reset RBNZ rate outlook if surprised. Wheeler speech not expected to be influential. US yields rising, testing top of current range

By Doug Steel

Global bond yields were higher again overnight, testing the top of the recent range.

Generic US 10-year yields are up around 6 bps, to around 2.52%. They were about here last Friday, before dipping below 2.40% on Monday. Yields are testing the top of the 2.30% to 2.50% range that has largely contained them this year.

AU 3-year swap yields fell 5-6 bps shortly after the AU inflation data, weighing on the short end of the NZ curve. NZ 2-year swap yields closed the day, up 1 bp, at 2.425%, having pushed higher earlier in the day.

NZ CPI Q4 data are to be released this morning. This is highly significant to the market’s view on the local policy outlook. Currently, the market prices around a 50% chance of an RBNZ hike by the August meeting. A full hike is priced by November. Annual inflation is expected to lift back inside the RBNZ target band for the first time since mid-2014. Market expectations for the CPI are centred around +0.3% q/q and +1.2% y/y.

RBNZ Governor Wheeler speaks today. But the speech is unlikely to be market moving given it will not be published and the Bank said it ‘will not contain new information about monetary policy’.

Note it is Australia Day holiday today.

Doug Steel is a senior economist at BNZ Markets. All its research is available here.