New Zealand bonds modestly higher after RBNZ maintains neutral bias in policy meeting, leaves OCR at 1.75 pct

The New Zealand government bonds traded modestly higher Thursday after the Reserve Bank of New Zealand (RBNZ) maintained a neutral bias in its monetary policy meeting held late Wednesday.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 1 basis point to 3.18 percent at the time of closing, the yield on 7-year note also slipped nearly 1 basis point to 2.80 percent and the yield on short-term 2-year note traded 1 basis point lower at 2.16 percent.

At its February interest rate decision, the central bank kept the Official Cash Rate on hold at 1.75 percent. The bank also signaled that the OCR is likely to remain on hold for some time. The Bank’s forecasts for the OCR have been nudged up very slightly over the next few years, and now curve up just a little in late-2019 or early-2020. This doesn’t suggest that any rate hikes are imminent.

"With inflation expected to lift only gradually, we see a very low probability that recent OCR cuts will be reversed any time soon," Westpac commented in its latest research report.

In contrast, dairy prices have found some stability over the past month. In last night’s GlobalDairyTrade auction, prices rose 1.3 percent following the 0.6 percent gain in the previous auction. After falling away a bit through December, buyer interest out of China has improved this year. The fact that it held up in this auction that coincided with the Chinese New Year, provides a positive signal for demand ahead.

Tight global supply remains an important factor underpinning prices at these levels, with production in most major exporting regions continuing to decline on a year-on-year basis. But production should begin to stabilize in the coming months, and this would see some pressure come off prices.

Meanwhile, the New Zealand’s benchmark S&P/NZX 50 Index closed 0.78 percent lower at 7,121.63, while at 05:00 GMT, the FxWirePro's Hourly NZD Strength Index remained neutral at -55.46 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex