The New Zealand government bonds closed modestly firmer Tuesday as investors remained cautious ahead of the OPEC ministerial gathering, in which oil producing countries are expected to strike an agreement on output cut.
The yield on the benchmark 10-year bond, which moves inversely to its price, closed 1 basis point lower at 3.12 percent and the yield on short-term 2-year note fell 5-1/2 basis points to 2.12 percent.
The Kiwi bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Reserve Bank of New Zealand's target. Crude oil prices fell on worries that the OPEC will be able to cut production output cut during a meeting on Wednesday. The International benchmark Brent futures fell 0.50 percent to $4.9 and West Texas Intermediate (WTI) dipped 0.6 percent to $46.7 by 04:40 GMT.
The Organization of the Petroleum Exporting Countries (OPEC) is meeting officially in Vienna on Wednesday to discuss a planned production cut in an effort to curb overproduction that has dogged markets and more than halved prices since 2014, Reuters reported.
With a high degree of uncertainty going into the last 24 hours before the meeting, oil price volatility is expected to be high. There remains disagreement among OPEC-members over which producers should cut by how much, and a plan for non-OPEC oil giant Russia to participate has so far also failed, they added.
The Reserve Bank of New Zealand in its November monetary policy meeting released on November 10, lowered the official cash rate (OCR) once again by 25 basis points, after easing in August, a move is taken for the seventh time since June 2015, in an attempt to boost the slow-moving economy.
However, developments over the past few months have been positive for the New Zealand economy, and the downside risks to the RBNZ’s view have diminished. We expect that the OCR will remain on hold for an extended period. However, longer term rates look set to rise from here.
Lastly, investors also remain keen to focus on the upcoming RBNZ Governor Graeme Wheeler speech, in an attempt to estimate the RBNZ's most likely policy step.
Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed down 1.21 points to 6,901.75. While at 05:00 GMT, the FxWirePro's Hourly New Zealand Dollar Strength Index remained highly bullish for second straight day at +133.52 (higher than +75 represent a bullish trend).
