The New Zealand government bonds closed Thursday's session in positive terrain after dairy and milk prices fell at the latest Global Dairy Trade (GDT) auction. Also, rising bets that New Zealand’s central bank will cut its cash rate in the coming months from an already record-low 2.25 percent, drove traders towards safe-haven buying.
The yield on benchmark 10-year bond, which moves inversely to its price fell 1-1/2 basis point to 2.250 percent in the end session, the yield on 7-year note also dipped 1-1/2 basis point to 1.950 percent and the yield on short-term 2-year note ended ½ basis points lower at 1.975 percent.
Dairy prices in the third auction of the fiscal year 2016-17 fell 0.4 percent, as compared to unchanged prices in the previous auction. Similarly, milk powder prices dipped 1.6 percent in the latest auction.
Moreover, the dairy prices remained 15 percent lower than the October 2015 peak, creating pressure on the Reserve Bank of New Zealand (RBNZ) for a further cut in interest rates if prices don’t improve in the near team.
In addition, the central bank will stay exceptionally sensitive to the movements in the dairy sector and the exchange rate. Despite the fact that the currency is off its highest levels, NZD/USD is trading comfortably above the 0.7000 level and is still close to 13-month highs, which will bring worry inside the dairy sector and the RBNZ.
Lastly, without a solid recuperation in dairy prices, there will be further pressure on the New Zealand central bank to slice the countries borrowing costs to help bring down the New Zealand dollar (NZD) and support the prices of milk exports in local currency terms. The following RBNZ meeting will be on August 10 and further NZD gains would build pressure for the central bank to cut rates once more.
The New Zealand’s benchmark S&P/NZX50 Index closed up 30.29 points to 7,007.52.
The material has been provided by InstaForex Company – www.instaforex.com