By Kymberly Martin
It was another quiet day in NZ markets with little on the domestic scene to impact on short-end pricing. The 2-10s swap curve closed fractionally flatter at 133bps.NZ bond yields were little changed.
At the NZ close, the RBA announced that it kept rates on hold at 2.75%, as we (and most of the market) expected.
The RBA retain their easing bias, subject to a contained inflation outlook persisting, which it expects even with the AUD’s decline.
The Australian economy is seen growing a bit below trend. There was a hint the RBA now sees the peak of the mining investment boom as having passed. It looks like the RBA will tolerate growth “a bit below trend”, but in our view this growth softness looks to have further to run.
Our NAB colleagues still see the economy’s under-performance as underwriting another RBA easing.
The response of the AU rates market was fairly muted. NZ-AU 2-year swaps continue to sit at 35bps. The market still prices at least one more 25bps cut from the RBA in the year ahead.
We continue to see NZ-AU 2-year spreads widening beyond 50bps by year-end.
Overnight, in the backdrop of subdued equity markets and a stronger USD, US 10-year bond yields were surprisingly contained within a tight 2.45-2.49% range. Tonight, there is plenty to impact on US long yields.
The market will be eyeing the ADP employment report for indications as to risks around Friday’s all-important US payrolls report.
A soft reading could see the recent pullback in US yields extend. US mortgage applications, trade balance and ISM non-manufacturing will also be released.
There are no domestic data releases scheduled for today.
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