NZGBS: Richer Ahead Of Q2 CPI

In early local trade, NZGBs are 4-5bp richer after US tsys traded mixed after the bell, well off early session highs after June retail sales disappointed at +0.2% vs. +0.5% est (May up-revised to +0.5%, however, from +0.3%).

• Swap rates are 3-4bp lower with the 2s10s curve flatter.
• RBNZ dated OIS pricing is flat to 2bp softer for ’24 meetings.
• The dairy auction disappoints with the global dairy trade price -1.0%. Analysts had expected prices to rise 1.9%.
• Today sees the release of Q2 CPI with economists expecting the quarterly pace to step down to +0.9% q/q from +1.2% in Q1. This will leave the annual rate at +5.9% down from +6.7%. If analysts are correct, then inflation would be below RBNZ’s Q2 forecast of +1.1% q/q and +6.1% y/y. The RBNZ appears to be on hold for now, unless inflation isn’t in the target band by H2 2024, with the risk to rates likely to stem from sticky non-tradeable inflation (+1.0% q/q versus +1.7% prior).
• BNZ expects Q2 CPI to come in slightly higher than consensus at +1.0% q/q and +5.9% y/y. It sees inflation moderating in a “measured fashion”. But it believes that a significant upside surprise would be needed to shift the RBNZ from its on-hold position.