New Zealand bonds jump at close after trade deficit widens in August; RBNZ policy decision in focus

The New Zealand bonds jumped at the time of closing Tuesday after the country posted a bigger-than-expected goods trade deficit in August as exports of milk powder, butter and cheese declined and imports of crude oil and petroleum products jumped higher. Also, investors are closely eyeing the Reserve Bank of New Zealand’s (RBNZ) monetary policy decision, scheduled to be unveiled on September 27 for detailed direction into the debt market.

At the time of closing, the yield on the benchmark 10-year Treasury note, which moves inversely to its price, slumped 5 basis points to 3.07 percent, the yield on 7-year note plunged 4-1/2 basis points to 2.83 percent and the yield on short-term 2-year ended 3-1/2 basis points lower at 2.12 percent.

The country had a trade deficit of NZD1.235 billion in August, little changed from the NZD1.24 billion deficit in August last year but ahead of the NZD968 million average monthly deficit in August over the last five years, Statistics New Zealand said. The deficit was bigger than the NZD825 million median forecast in a Bloomberg survey of 10 economists.

The NZ general election on Saturday, September 23 did not deliver a clear winner, although it did produce an outcome not too different from recent poll results, as the table below shows. There are still around 384,000 special votes to be accounted for (worth around 15 percent of the total), which could shift the proportions, and the final result is expected to be declared on October 7.

"The RBNZ is highly unlikely to alter the stance of monetary policy next week, due to election uncertainty. Fortunately, the economic situation is such that the RBNZ can afford to sit on its hands. We expect no change in the OCR next week, and a repeat of previous monetary policy guidance," Westpac Research commented in its latest report.

Meanwhile, the NZX 50 index closed 0.22 percent higher at 7,887.18, while at 05:00GMT, the FxWirePro's Hourly NZD Strength Index remained neutral at -56.85 (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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