New Zealand bonds slump at close ahead of RBNZ’s monetary policy decision; markets await Governor Orr’s first statement

New Zealand bonds slumped at the time of closing Wednesday as investors remained eager to watch the Reserve Bank of New Zealand’s (RBNZ) monetary policy decision, scheduled to be unveiled late today, followed by a press conference later in the day. Also, the focus remains on the central bank Governor Adrian Orr’s first policy decision speech, due on May 10 for added insights into the debt market.

At the time of closing, the yield on the benchmark 10-year note, which moves inversely to its price, jumped 4 basis points to 2.81 percent, the yield on the long-term 20-year note climbed 3 basis points to 3.35 percent and the yield on short-term 2-year also closed 3 basis points higher at 1.92 percent.

The Reserve Bank of New Zealand (RBNZ) is not expected to adopt any changes in its outlook for the Overnight Cash Rate (OCR) in its monetary policy meeting scheduled late today; but if there is a change, it will be in the direction of slightly earlier hikes than previously signalled, according to the latest report from Westpac Research.

For over a year now, the Reserve Bank has consistently delivered the same message. Inflation is too low, and the OCR will remain low until that is rectified. In its last communique the RBNZ expected that would mean keeping the OCR at 1.75 percent until mid to late 2019, but like all forecasts, that is subject to change.

Recent economic developments have been, on balance, slightly positive for inflation. The exchange rate has dropped sharply below the RBNZ’s forecast, the housing market has been stronger than the RBNZ expected, and export commodity prices have risen instead of falling as the RBNZ anticipated. That is more than enough to offset the fact that GDP growth has probably been weaker than the RBNZ expected in the six months to March.

Meanwhile, the NZX 50 index closed 0.077 percent higher at 8,594.59, while at 06:00GMT, the FxWirePro's Hourly NZD Strength Index remained highly bearish at -132.58 (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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