In view of analysts at TD Securities, the NZ economy is on a solid footing with the most recent run of hard data all surprising to the upside – annual GDP is running at trend around 3%, the labour market is firing and inflation is not far from the midpoint of the RBNZ’s 1-3% target band.
Key Quotes
“The NZ rates market continues its stellar outperformance vs its peers – it was the best performing rates market in 2017 and held the position up to the beginning of November, before the NZ Employment data inspired sell-off.”
“Despite the fundamentally sound outlook, the RBNZ’s appetite to entertain rate hikes is non-existent. Back in 2014-15 for example when annual growth was running above 4%, the RBNZ was busy cutting rates, given CPI at 0.4%/yr was well short of expectations.”
“Now the RBNZ is only 0.3% short (NZ sectoral factor model) of hitting the mid-point of its 1-3% inflation target yet the RBNZ continues to beat the drum on rate cuts, with Governor Orr pointing to cuts of as much as 75bps in a risk-off scenario.”
“The difficulty in trading and positioning in NZ rates is that fundamentals appear to play second fiddle to the Central Bank’s psychology. Fundamentals point to higher yields, yet we are left with playing the RBNZ personality.”
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