New Zealand bonds close lower on caution ahead of September trade balance data

The New Zealand bonds closed on the downside Wednesday as investors remained focus on the country’s trade balance data for the month of September, scheduled to be released later today by 21:45GMT.

At the time of closing, the yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 1-1/2 basis points to 3.03 percent, the yield on 20-year note also climbed 1-1/2 basis points to 3.57 percent and the yield on short-term 2-year ended 1 basis point lower at 2.04 percent.

After nearly a month of negotiations, New Zealand finally knows the form of the next Government; New Zealand First will support the Labour Party to form a minority coalition government. The Green Party will support the new government on confidence and supply.

A range of indicators suggests that New Zealand’s labor market has continued to strengthen this year, even as the wider economy has entered a period of slower growth. Business surveys report that firms have been hiring at a rapid pace and intend to continue doing so, although skilled workers are becoming increasingly difficult to find. And in our quarterly employment confidence survey, households were on balance optimistic about job opportunities for the first time in nine years.

The labor market reports are the last significant pieces of economic information before the Reserve Bank’s November Monetary Policy Statement. The Reserve Bank’s forecasts are very similar to our own: a further small decline in the unemployment rate and a temporary boost to wage growth from the healthcare workers’ settlement.

Any surprises in the labor market data are unlikely to alter the RBNZ’s stance on their own; other considerations such as the slowdown in GDP growth and the cooling housing market are likely to play a bigger role in the RBNZ’s thinking. We will release our preview of the MPS next week, Westpac Research report.

Meanwhile, the NZX 50 index closed 0.09 percent lower at 8,122.67, while at 06:00GMT, the FxWirePro's Hourly NZD Strength Index remained highly bearish at -139.62 (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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