New Zealand bonds end tad higher after Q2 CPI disappoints; all eyes on GDT price auction

The New Zealand bonds ended the session on a slightly higher note Tuesday after the country’s consumer price-led inflation for the second-quarter of this year disappointed markets, coming in flat for the quarter. Also, market participants are closely eyeing the GlobaldairyTrade (GDT) price auction, due later today for further direction in the debt market. 

At the time of closing, the yield on the benchmark 10-year bond, which moves inversely to its price, remained flat at 2.99 percent, the yield on 7-year note slipped 1/2 basis point to 2.87 percent while the yield on short-term 2-year note ended 2-1/2 basis points lower at 1.95 percent.

New Zealand’s Consumer Price Index (CPI) was unchanged in the June quarter, taking the annual inflation rate down from 2.2 percent to 1.7 percent. This overstates the degree to which inflation has slowed, as it includes volatile items such as fuel prices. But a range of measures of underlying inflation also saw some slowdown.

However, these inflation figures should lead to a substantial rethink in financial markets, which have been persistently pricing a hike in the Official Cash Rate by mid-2018. While inflation has come off its lows, the economy is not in danger of overheating, and there seems no need for OCR hikes this year or next year, Westpac reported.

In the last GDT price auction, held on July 4, dairy prices declined 0.4 percent, following a 0.8 percent decline at the previous sale. NZ dairy output is expected to increase during the next 12 months which will provide important net support to overall dairy incomes if global prices hold firm.

Meanwhile, the New Zealand’s benchmark S&P/NZX 50 Index closed 0.10 percent higher at  7,707.33 while at 05:00GMT, the FxWirePro's Hourly NZD Strength Index remained neutral at -6.23 (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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