Markets now price in almost two more 25 bps OCR cuts. Eyes on GDT dairy auction

By Kymberly Martin

NZ swaps closed flat to down 2 bps across the curve.

Overnight, US yields declined, taking 10-year yields back down to 2.15%.

In a fairly quiet start to the week, NZ swaps closed a little lower across the curve.

The market prices that the OCR will be cut to 2.52% by April next year. The market prices around an 85% chance of a cut at the RBNZ’s next meeting, on September 10th. Our central case remains a 25 bps cut at this and the subsequent meeting in October, taking the OCR back to its cyclical trough of 2.50%.

Overnight, US yields dipped across the curve after an unexpected plunge in the Empire State manufacturing index in August. Although only a regional survey it raises questions about the health of the US factory sector in the face of a stronger USD and/or slower global demand. US 2-year yields dipped from above 0.72% to trade at 0.70% currently. 10-year yields fell from 2.19% to sit at 2.15%, at present.

Today, in the absence of scheduled domestic data releases, NZ rates may take their cue from overnight moves. Otherwise, there are the RBA’s August Minutes to look out for, ahead of the latest GDT dairy auction in the early hours of tomorrow morning.

We would not be surprised to see a modest bounce in prices at auction this week, given Fonterra’s recent announcements to reduce volumes and a recent tick up in futures pricing.

Whether this would mark the start of stabilisation after the recent plunge in dairy prices remains to be seen. However, it could be enough to prompt a small bounce in NZ short-end yields.


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

Daily swap rates

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