By Kymberly Martin
NZ swap yields closed down 1-2bps yesterday on light volume ahead of the RBA meeting. 2-year closed at 2.68% well within its 2.55%-2.85% range. The 2s-10s swap curve has flattened a little further to 102bps.
NZ markets showed little response to yesterday’s QES. Despite our fears for a pull-back, weekly hours worked were shown to rise 1.9% compared to a year ago.
The labour market data strikes the middle ground, in our view. On one side is persistent exchange rate strength, which could yet convince the RBNZ to cut the cash rate to neutralise its impact on the economy.
On the other is the (Auckland) housing market, which suggests the Bank should lift the OCR. The key domestic focus will now be Thursday’s employment data.
The RBA left the cash rate at 3.25% yesterday, surprising a good chunk of the market.
The RBA cited several reasons to keep the cash rate on hold: slightly higher than expected inflation readings; more positive recent data on the world economy; evidence previous rate cuts are gaining traction.
Still, the RBA’s easing bias persists. Our NAB colleagues favour a further 25bps cut in February. For now, AU short-end swap yields are up 6-10bps. AU 10-year bond yields also rose by 5bps.
The market now prices a further 55bps of cuts for the year ahead.
Voting in the US election is underway and it continues to look like a very close race.
While equity markets have rallied ahead of the result, bond markets have shown little pulse. US 10-year yields bob around just above 1.70%.
Today’s focus will be on the results of the US election. Given the move seen in AU yields after the NZ close yesterday, NZ yields are likely to open a little higher today.
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