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Phil Borkin, Senior Macro Strategist at ANZ, suggests that the market has quite rightly pared back expectations for an RBNZ OCR cut following the Q2 CPI release, which was stronger (both at the headline level and in spirit) to what ANZ was expecting.

Key Quotes

“Quite naturally, IRS receivers are likely to be more hesitant here, which is only likely to exacerbate thin liquidity in a market still cautious about funding market pressures (even though BKBM has been setting lower recently). But with downside growth risks remaining and the NZD potentially on the cusp of unwinding recent weakness, we think the market can keep some odds of a cut priced in (perhaps around 5%). And even if you don’t believe that, hikes still look some way away, which should limit any back-up in yields.”

“The NZGB curve has remained range-bound on an asset swap basis, which we think will continue for now. There is roughly another $200k of DV01 to absorb tomorrow with the next 2037s tender, but we think it will go better than the last this bond was tendered.”