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The New Zealand bonds closed modestly firmer on Wednesday after data showed that unemployment rate increased more-than-expected in the first quarter of 2016. Also, 1.4 pct decline in the Fonterra's Global Dairy Trade auction, which comes on the back of two consecutive increases, shifted investors towards safe assets. The yield on the benchmark 10-year bonds which moves inversely to its price closed at 2.880 pct and the yield on the 2-year bonds closed higher 0.24 pct to 2.105 pct.
The New Zealand first quarter unemployment rate rose to 5.7 pct, higher than the market expectation of 5.5 pct, from 5.3 pct in the last quarter of 2015. On the other hand, employment change jumped 1.2 pct q/q, higher than the investor’s anticipation of 0.6 pct q/q, as compared to prior 0.9 pct. On annual basis, it rose 2 pct y/y, against expectation of 1.3 pct, from 1.3 pct in the previous quarter. Moreover, Average hourly earnings rose 0.3 pct, lower than the investors consensus of 0.5 pct, compared to 0.2 pct previously.
In addition, the New Zealand Fonterra's GDT (Global Dairy Trade) auction held overnight declined 1.4 pct to USD 2,203 per tonne on the back of two consecutive increases. However, the key whole milk powder price recorded a modest gain of 0.7 pct to USD2176 per tonne. On the other hand, Fonterra and market commentators are expecting prices to rise later in the year as European dairy production drops off toward the end of their milking season.
Lastly, we foresee the RBNZ cutting rate in June to around 2% and expectations of a further rate cut in August remains on. The Central bank may act on the housing market if they cut any further. However, the bank has not signalled any cut in the next policy meet in June, retaining its easing bias.
Meanwhile, the New Zealand’s benchmark S&P/NZX index closed down 0.27 pct or 18.51 points to 6,824.5.
