New Zealand bonds end higher ahead of GDT price index figure, weak CPI reading

The New Zealand government bonds closed higher on Tuesday as investors remained cautious ahead of the GlobalDairyTrade price index figure. Also, traders became more risk averse on discouraging second quarter consumer inflation data, which created higher pressure on the central bank for a further policy easing in the upcoming monetary meeting.

The yield on benchmark 10-year bond, which moves inversely to its price, fell 7 basis points to 2.275 percent, the yield on 7-year note also dipped 7 basis points to 2.025 percent and the yield on short-term 2-year note ended 7 basis points lower at 1.915 percent.

On Monday, the New Zealand second quarter consumer price index rose 0.4 percent q/q, lower than the market expectation of 0.5 percent, as compared to 0.2 percent in the previous quarter. Petrol prices marked the largest upward contribution. Moreover, prices for tradable goods and services rose 0.6 percent, whereas prices for non-tradable goods and services rose 0.3 percent.

On an annual basis, it rose 0.4 percent y/y, against market consensus of 0.5 percent, from 0.4 percent during a year ago period. Lower prices for transport made the main downward contribution. Prices for non-tradable goods and services increased 1.8 percent, whereas prices for tradable goods and services decreased 1.5 percent. In addition, the New Zealand June services PMI slightly fell to 56.7, from 56.9 in May.

According to Reserve Bank of New Zealand new housing rules proposal, new LVR limit of 60 percent would be set for landlords across the country, essentially extending and lowering the current limit for Auckland investors of 70 percent. Loans would be exempted from the restrictions, including loans to build new homes, would continue to be exempted. The RBNZ Governor Graeme Wheeler said that the proposed restrictions recognise the higher risks associated with such lending.

Last week, the Reserve Bank of New Zealand surprised markets by announcing that it will issue an economic update on July 21, which comes way before the upcoming monetary policy meeting of August 11.

We foresee that the RBNZ will go for further rate cuts to counter deflationary pressure if inflation fails to revive, which is way below the target range of the central bank.

Lastly, investors will remain keen to focus on the GlobalDairyTrade price index figure, which is scheduled to be released on Tuesday. Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed up 0.69 points to 7,154.83.