By Kymberly Martin
As the NZ market was closed for Waitangi day on Friday, NZ swaps ended the week at Thursday night levels, with 2-year at 3.53% and 10-year at 3.62%.
These were slightly above the week’s lows reached on Wednesday following the RBA’s rate cut the previous afternoon.
With the market now very close to fully pricing a 25 bps rate cut from the RBNZ by this time next year, we see risk-reward as starting to shift toward being a payer of NZ short-end rates.
However, we expect inflation indicators will remain subdued for some time, culminating in a very weak Q1 CPI print (due April 20). That prevents us being an aggressive payer just yet.
That said, we still firmly believe the RBNZ will not cut rates this year.
NZ 10-year swap closed for the week at 3.62%, a 6 bps decline on Thursday.
However, the landscape for long-end yields looks a little different following Friday night’s US payrolls release. Following the strong report, inclusive of upward revisions to previous months, US yields gapped higher across the curve.
In particular, the market appeared focused on the jump in US average hourly earnings to 2.2%y/y (0.5%q/q). Until now, wages pressures have been the missing piece of the US economic recovery. This data helps keeps our call for a first Fed rate hike mid-year, firmly intact.
US 2-year yields ended the night 12 bps higher at 0.64%, and 10-year 16bps higher, at 1.96%. This will exert steepening pressure on the NZ curve at the open today.
Otherwise it is a relatively quiet start to the week on the domestic calendar.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.