Quiet markets eye US Fed's dot plot. Local markets still ambivalent about a RBNZ rate hike in November. Next up, NZ's current account data

By Doug Steel

US 10-year Treasury yields had a look toward 2.63% in the early evening more clearly poking through the top of the well-established 2.30% to 2.60% range.

But it didn’t last as risk appetite waned and oil prices fell, more than offsetting any influence from higher than expected PPI inflation.

Currently, 10-year yields sit around 2.59%, down about 3 bps, reversing the previous day’s gains and back into the established range. It looks like a test of the December 2016 high of near 2.64% will have to wait for another day.

The Fed meeting started this morning, with the much awaited announcements due at 7:00 tomorrow morning NZT. A 25 bp hike is well priced, with focus to be on forward guidance and the median ‘dot plot’.

There was little change in NZ interest rate markets yesterday, with bond and swap yields generally a basis point or two lower across the curve.

NZ 2-year swap closed down nearly 1 bp, at 2.33%, as it continues to trade a very tight range. This follows from market expectations for the RBNZ barely budging since the early-February MPS. The market continues to price a 50/50 chance of a 25 bp hike by the November 2017 meeting. There is potential for more movement over the coming month or so as the market digests the Fed and currency response, tomorrow’s NZ Q4 GDP, next week’s OCR review, and next month’s release of the latest QSBO and CPI data.

NZ’s Q4 current account data today is not expected to ruffle markets. Elsewhere the day ahead has a fair bit of data, but market moves are likely to be muted ahead of the Fed decision. Tomorrow could prove more turbulent with the Fed early tomorrow morning, before NZ GDP and AU employment, and later, the BoJ and BoE.

Doug Steel is a senior economist at BNZ Markets. All its research is available here.