NZ Stays With Hikes Eyeing RBNZ’s Track Record

A week is a long time in STIR pricing these days, particularly when there is fear of financial contagion, with the U.S. shifting from a chronic $-Bloc underperformer to a dramatic outperformer with terminal rate expectations tumbling as much as 175bp in the U.S. yesterday versus relatively paltry declines of 75bp in Australia and 50bp in NZ.

• As highlighted yesterday, undershooting OIS tightening expectations has not been part of the Fed’s playbook this cycle but is a familiar theme for the RBA (Figure 1).

Figure 1: RBA Cash Rate Vs. OIS 6M1M (led 6M)

Source: MNI-Market News / Bloomberg

• Utilising the same analysis to NZ, the RBNZ appears to occupy the middle ground between the Fed and the RBA with undershoots in late 2022 but consistent overshoots in 2023 (Figure 2).

Figure 2: RBNZ OCR Vs. OIS 6M1M (led 6M)

Source: MNI-Market News / Bloomberg

• Applying these respective tightening cycle norms to the current situation it shouldn’t come as a surprise that the AU market was the first to price a halt to the tightening cycle, albeit temporarily, with only a scaling back of tightening expectations in the U.S. and NZ.
• RBNZ dated OIS currently has 25bp of tightening for the April meeting.