NZ swap and bond yields closed up 2-4 bps yesterday.
Overnight, US 10-year yields pushed up from 2.16% to 2.21%.
NZ yields pushed higher from the open, following the previous night’s offshore moves. The move gained a little momentum in the afternoon as the AU market sold-off ahead of the RBA’s meeting.
At the meeting the RBA left its cash rate unchanged, against the market’s pricing of a 30% chance of a cut, immediately prior to the meeting. The Bank notes that inflation provides the scope for further easing. However, that scope would require either deterioration in the outlook or evidence that the improving outlook remained of insufficient pace to reduce unemployment. Both of these assessments will likely take at least some months to emerge, short of a major development offshore.
Our NAB colleagues continue to see the RBA on hold at 2% for an extended period, albeit with a mild bias to ease. From 1.92%, AU 2-year swap closed at 1.98%. The market now prices around a 30% chance of an RBA cut at its Dec meeting and a trough in the cash rate of 1.66% by mid next year.
The ‘no cut’ announcement came after the close of the NZ market yesterday, and would be inclined to influence the market’s thinking on the RBNZ, at the open today. However, working in the opposite direction, is the result of the latest GDT dairy auction overnight. Average prices declined 7.4%. Although we see this as a consolidation phase, rather than the start of a prolonged negative trend, the market may see it as reason to price a more cautious RBNZ.
Overnight, US yields continued to push higher as the USD strengthened, despite minimal data releases. The market now prices fractionally more than a 50% chance of a US Fed hike by year end. US 10-year yields have traded up to 2.21%, their highest level since mid-Sept. Expect some steepening pressure on the NZ curve today.
Domestically, the Q3 employment report will be the focus today. We are aligned with consensus in expecting a tick up in the unemployment rate from 5.9% to 6.0%. The LGFA will also hold its tender this afternoon. NZ$20m of 2019s, NZ$50m of 2023s, and NZ$70m of 2027s will be on offer.