The New Zealand government bonds closed higher to finish off the week on Friday as investors wary ahead of potentially seismic events this month including Britain’s referendum on European Union membership, Bank of Japan and the Federal Reserve meeting. Also, weak crude oil prices shifted investors towards safe haven assets.
The yield on the benchmark 10-year bonds, which moves inversely to its price fell 3-1/2 basis point to 2.585 percent.
In the global debt market, the benchmark 10-year US Treasury note yield fell near to 3 basis points to 1.678 percent mark for the first time since February. The German 10-year bund yields fell to a new record low of 0.034 percent, after testing its 2015 low of 0.05 percent and it likely to test zero as soon as this week.
NZ bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the RBNZ's target. Today, crude oil prices fell on a stronger dollar, after jumping beyond $52 mark on Thursday. The International benchmark Brent futures fell 0.56 percent to $51.66 and West Texas Intermediate (WTI) dipped 0.81 percent to $50.15 by 05:00 GMT.
On Thursday, the Reserve Bank of New Zealand kept the Official Cash Rate unchanged at 2.25 percent on Thursday, on par with expectations. The central bank kept its easing bias and stated that further easing of monetary policy might be needed to make sure that the future average inflation settles around the mid-range of the target. The Monetary Policy Statement of the RBNZ suggests that the central bank is upbeat about the economy and less concerned regarding low inflation than earlier in 2016, said Westpac in a research report.
RBNZ Governor Graeme Wheeler stated that volatility in the global financial market has alleviated and the global growth prospect seems to be stable. Also, Wheeler mentioned that commodity prices have rebounded modestly in recent months, but the global economy continues to be subdued in spite of stimulatory monetary policy. He added that considerable risks on the downside remain.
The central bank noted that net immigration, tourism, construction and accommodative monetary policy continue to underpin domestic activity. Meanwhile, the RBNZ mentioned that house price inflation in Auckland and other regions is adding to financial stability concerns.
The kiwi jumped 1.7 percent at $0.7140 and climbed to $0.7148 at one point, reaching a high not seen since June 2015 after the RBNZ held rates steady but retained an easing bias.
Looking ahead, we foresee that the central bank could lower its official cash rate further if core inflation continues to trend downward, as the RBNZ indicated. If inflation and GDP growth fail to improve over the coming months, such a move will occur sooner rather than later. We see that the possibilities of the RBNZ cutting rate in September to around 2% is high as the NZD is trading near the upper range against the greenback. The apex bank may act on the housing market bubble if they cut any further.
Markets will remain keen to focus on next week’s GlobalDairyTrade (GDT) Price Index and Q1 GDP figure on Wednesday.
Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed up 0.02 points to 6,971.78.
The material has been provided by InstaForex Company – www.instaforex.com