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The New Zealand bonds ended on the upside Monday as investors remain sidelined in any major trading activity due to lack of any economically significant data and tracking some strength in the U.S. Treasuries. Also, markets will be focussing on the country’s trade balance data for the month of June, scheduled for release on July 25 for further direction in the bond market.
At the time of closing, the yield on the benchmark 10-year bond, which moves inversely to its price, fell 1/2 basis point to 2.94 percent, the yield on 7-year note also slipped 1/2 basis point to 2.81 percent while the yield on short-term 2-year note ended 1 basis point lower at 1.95 percent.
Continued soft CPI figures question the path for inflation going forward. While strong inflation suppressants remain, better growth momentum and a lift in wage growth should eventually flow into more price tension and core inflation lifting in a slow manner. But the RBNZ will feel fully vindicated in its ultra-cautious stance; so a hat-tip to them.
The risks that the OCR stays low for longer are growing. In data this week, the trade balance should recover in seasonally adjusted terms, while new mortgage lending will likely weaken further. Building consent issuance is likely to continue to struggle to push much higher.
Long end NZGS have underperformed during the recent UST rally and that is a trend that is likely to continue near-term if the FOMC is dovish. But equally, such an outcome would also likely be associated with an elongated period of NZD strength, which should keep a lid on the NZ/US spread.
Meanwhile, the New Zealand’s benchmark S&P/NZX 50 Index closed 0.15 percent higher at 7,682.29 while at 06:00GMT, the FxWirePro's Hourly NZD Strength Index remained highly bullish at 124.23 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex
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