New Zealand bonds close tad higher as investors shrug-off rebound in dairy prices, eye RBNZ policy decison

The New Zealand bonds closed tad higher Wednesday as investors largely shrugged-off the sharp rebound in global dairy prices at the overnight GlobalDairyTrade price auction. Also, markets are now looking forward to the Reserve Bank of New Zealand’s monetary policy decision, due to be held later today for further direction in the debt market.  

The yield on the benchmark 10-year bond, which moves inversely to its price closed flat at 3.25 percent, the yield on 7-year note slipped nearly 1 basis point to 2.82 percent while the yield on short-term 2-year note traded 1/2 basis points higher at 2.12 percent.

New Zealand’s Dairy prices stabilised in last night’s GloblDairyTrade auction, rising 1.7 percemt following a 9 percent fall over the previous two auctions. Within last night’s move, whole milk powder prices rose 2.9 percent to USD2,855/tonne and skim milk powder prices, weighed down by high stockpiles in Europe and an increase in product from the US, continued its poor run falling 10.1 percent last night to USD1,948/tonne.

"We expect the Reserve Bank to hold the OCR at 1.75 percent and to maintain a neutral outlook for interest rates," Westpac commented in its latest research report.

While near-term inflation is looking a bit stronger, growth in activity has fallen short of the RBNZ’s very optimistic forecasts. The slowdown in the housing market may have been a factor here. The risk is that the economy simply may not have enough puff to generate the sustained lift in inflation pressures that the RBNZ is looking for.

Meanwhile, the New Zealand’s benchmark S&P/NZX 50 Index closed 0.35 percent lower at 7,060.83, while at 05:00 GMT, the FxWirePro's Hourly NZD Strength Index remained neutral at 42.72 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex