Lower tech stocks drive down US equities while investors rotate to value. Gold and silver prices recover strongly. RBA hikes as expected, supporting higher Australian rates and the AUD, with positive spillover into the NZD

There has been little news to digest overnight.  A slump in tech stocks has dragged down the S&P500 while US Treasury yields have traded a tight range.  Gold and silver prices have bounced strongly, while the USD is modestly weaker. The AUD has held onto its gain post the RBA rate hike yesterday while the NZD has pushed higher and trades this morning around 0.6040.

The S&P500 is down 1% in early afternoon trading, dragged down by a nearly 3% fall in the IT sector.  There has been a clear rotation out of IT into value stocks, with five of the eleven sectors showing gains. Walmart became the latest listed US company to hit the $1 trillion market cap threshold.  The Euro Stoxx 600 index closed up 0.1%.

After their massive falls recently, gold and silver prices have recovered strongly, suggesting that the big fall was exacerbated by forced selling and lower prices have attracted fresh buying. Gold is currently up 6% for the day to USD4940. Oil prices are up over 1%, following yesterday’s 6% fall – showing a modest reaction to the US-India trade deal, in which lower tariffs for India were agreed if India stopped buying Russian crude oil.  India hasn’t confirmed that deal and in any case it has already been buying a lot less Russian crude, with its imports down to a three-year low.

In the rates market, US Treasuries have traded a tight range overnight, with the 10-year rate a touch higher from the NZ close. European rates are modestly higher across the board, with the market ignoring weaker French CPI data, with France being seen as an outlier with annual inflation of just 0.4%.  Germany’s 30-year rate rose 3bps to 3.55%, its highest level since 2011. 

As widely expected, the RBA became the first major developed central bank to tighten policy this cycle, raising its cash rate by 25bps to 3.85%. The statement came across hawkish, with the Bank noting the material pick-up in inflation in the second half of 2025, stronger domestic demand, greater capacity pressures and tight labour market conditions.  The Board considered that inflation is likely to remain above target for some time. Based on market pricing, its forecasts didn’t show inflation returning to the mid-point of the target range for well over two years.

But Governor Bullock tempered market reaction by showing an unwillingness to suggest that further tightening was possible “it’s not clear one way or the other”. That said, other economists joined our colleagues at NAB in predicting that another rate hike would likely follow in May and market pricing moved in that direction.  Since the announcement, the 3-year bond yield is up 7bps while the 10-year rate is up 4bps, as implied by the futures market.

The AUD rose after the announcement and since this time yesterday, the AUD is the strongest major currency, up about 0.9% to 0.7010, after meeting some resistance at 0.7050. There was positive spillover into the NZD.  Australia entering a tightening cycle increases the odds of the RBNZ following. The NZD is trading around 0.6040 after meeting some resistance just under 0.6060 overnight.  NZD/AUD fell to as low as 0.8585 following the RBA announcement, before recovering, supported by the more neutral tone taken by Governor Bullock in the following press conference.  The cross is 0.8620, only 10pips lower from the pre-RBA level.

The USD is modestly weaker overnight and dollar indices are down about 0.3% for the day. JPY is the weakest of the majors.  USD/JPY rose above 156 overnight before reversing course. NZD/JPY has returned to a 94 handle and the NZD shows modest gains against EUR, GBP and CAD, trading at multi-month highs.

NZGB and swap rates were down about 2-3bps across the curve yesterday, reversing the previous day’s move as there was better receiving than paying interest in the swap market. These moves pre-dated the RBA announcement and, given the noted upward move in Australian rates since, the bias will be towards higher rates on the open today.

In the day ahead, key NZ labour market data are released, projected to show the first quarterly employment growth in 18 months and a halting in the drift higher in the unemployment rate. Annual wage disinflation is seen nearing an end, as improving labour demand meets some difficulty in being satisfied.  Data along these lines would reinforce market expectations that the RBNZ may need to hike rates sooner than previously indicated when viewed against the string of other positive releases over the past couple of months.

Tonight sees the release of euro area CPI data and, in the US, ADP private payrolls and the ISM services survey. Later today, the US government shutdown should end after Republicans were united in passing a key procedural vote, ahead of a later vote on the spending bill.

Stuart Ritson is a Markets Strategist at BNZ Markets.