Goldman Sachs: Upside Risks In Canada, Downside Risks Down Under

Goldman Sachs note that “looking across the more commodity sensitive interest rates markets, we see a differentiated mix of risks to yields from here. Year-to-date moves in CAD, AUD and NZD rates have been on the larger end, reflecting their significant exposure to the global economic and commodity cycles. Last week, we raised our forecasts for 10-Year yields in Canada to 3.25% at year-end 2022, about 20bp above forwards, as a still firm growth backdrop and commodity tailwinds could allow for further risk premium around the central bank’s expected policy path. In contrast, we see more material downside risks to Australian and New Zealand yields. While elevated inflation and central bank commitments to act forcefully in addressing these risks should generally keep yields on an upward trajectory in the near-term, we believe central banks will ultimately deliver less tightening than currently discounted by the forwards; we expect 10-Year ACGB & NZGB yields to peak early next year, and outperform versus other G10 markets thereafter.”