New Zealand bonds close lower on upbeat business confidence, GDT and GDP in focus

The New Zealand government bonds closed lower Monday after the recent private survey showed that the country’s business confidence grew in December. Also, markets will remain keen to focus on the Global Dairy Trade (GDT) auction and delayed third-quarter gross domestic product (GDP), which was postponed because of powerful earthquakes last month.

The yield on the benchmark 10-year bond, which moves inversely to its price, closed 3 basis points higher at 3.46 percent, the yield on 7-year note ended 4 basis points to 3.01 percent and the yield on short-term 2-year note jumped 3-1/2 basis points at 2.30 percent.

We foresee that the bond prices will keep drifting between small gains and losses in quiet trading due to a long Christmas holiday.

The ANZ’s business confidence grew to 21.7 in December, from 20.5 in November. Also, the Westpac McDermott Miller Consumer Confidence survey showed that household confidence rose by a solid 5.2 points in the December quarter - its largest increase in four years. That follows a modest increase last quarter, and leaves confidence sitting a little above its long-run average.

Additionally, the Kiwi bonds have been closely following developments in oil markets because of their impact on inflation expectations, which is well below the Reserve Bank of New Zealand's target. Crude oil prices jumped as investors expect tighter crude oil market in 2017. The International benchmark Brent futures rose 0.71 percent to $55.60 and West Texas Intermediate (WTI) climbed 0.89 percent to $52.36 by 04:50 GMT.

Moreover, the Federal Open Market Committee increased the fed funds rate to a 0.50-0.75 percent range last Wednesday, as widely expected. The statement noted that information received since the November meeting indicates that the labour market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year.

Also, the new projections showed that the central bankers expect three quarter-point rate increases in 2017, up from the two seen in the previous forecasts in September, based on median estimates.

Last week, Bill English has been elected by the National Party as the new Prime Minister of the country, with Paula Bennett being sworn-in as his deputy. The new PM will join office post-Christmas; however, there has been no decision yet over the appointment of the new Finance Minister.

In addition, the Reserve Bank of New Zealand Governor Graeme Wheeler in its recent speech said that the interest rates are probably low enough to return inflation to his 2 percent goal amid a robust economic expansion. He said the exchange rate is higher than the economic fundamentals would suggest is appropriate, but the global forces that have boosted the kiwi dollar may be abating.

Wheeler also reiterated that the bank remains concerned about the booming housing market, which has been fuelled by record-low borrowing costs. House-price inflation is much higher than desirable and poses concerns for financial stability.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed up 26.01 points to 6,786.25. While at 05:00 GMT, the FxWirePro's Hourly New Zealand Dollar Strength Index remained highly bearish for third straight day at -129.87 (lower than -75 represent a bearish trend).