As in other asset markets overnight, interest rate movements have been very limited over the past 24 hours.
NZ rates slipped marginally lower, with the longer end leading the declines.
The 10-year swap yield dipped 2 bps to 3.49%, despite a sell-off in US Treasuries on Friday.
Short end yields drifted 1 bp lower.
The market prices just a 16% chance of a rate cut from the RBNZ next Thursday. Despite the improvement in economic momentum of late, we are sticking with our view that the Bank will ease 25 bps further at that meeting, especially in light of the NZD’s appreciation over the past fortnight. However, we’d be the first to concede October is a line-ball call. A cut by year-end is still extremely probable.
Governor Wheeler is quite clearly reluctant to cut rates significantly further, with question marks around the marginal benefit of further easing. That attitude was given succour by last week’s inflation report. Importantly, the Bank’s (favoured) proprietary models of core inflation remain consistent with the target band, running at an annual 1.3% and 1.5% y/y in Q3.
US rates markets were relatively subdued, too. Short-end yields are a touch lower, but the 10-year bond yield is unchanged from Friday’s levels at 2.03%.
We anticipate a quiet day ahead, with only the RBA’s October Minutes due in our session. They are not expected to reveal any surprises. Central-bank speak might offer some modest volatility this evening. US data is second-tier, and reaction should be muted.
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Raiko Shareef is on the BNZ Research team. All its research is available here.
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