New Zealand bonds close flat as investors shrug-off worse-than-expected February trade deficit

The New Zealand bonds closed flat Friday as investors largely shrugged-off the worse-than-expected trade deficit for the month of February.

The yield on the benchmark 10-year bond, which moves inversely to its price fell 1 basis point to 3.23 percent, the yield on 7-year note hovered around 2.83 percent while the yield on short-term 2-year note closed flat at 2.15 percent.

New Zealand had a goods trade deficit of NZD18 million in February, weaker than expected. February is typically a strong month for export volumes (due to high meat and dairy volumes), meaning the seasonally adjusted deficit was much larger at NZD411 million. The annual trade deficit also deteriorated sharply to NZD3.8 billion as a large one-off export from February 2016 dropped out of the annual calculation.

Seasonally adjusted exports fell by 2.8 percent in February, more than unwinding January’s 0.9 percent rise. While higher dairy export prices are bolstering export receipts, lower milk production is weighing on export volumes and dampening the overall impulse. Dairy export receipts tracked sideways in February, but were still up 5.6 percent on a year earlier.

"We agree with the RBNZ that the OCR will remain on hold for some time. We have pencilled in two OCR increases in the first half of 2019, but the way we’d describe this more generally is that the first rate hike is too far away to be precise about the timing," Westpac commented in its latest research report.

Meanwhile, the New Zealand’s benchmark S&P/NZX 50 Index closed 0.16 percent higher at 7,073.83, while at 06:00 GMT, the FxWirePro's Hourly NZD Strength Index remained highly bearish at -150.48 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex