RBNZ Allows Space To Move Off Best Levels

Aussie bond futures ticked away from highs on the back of the trans-Tasman impetus observed post-RBNZ. This came after early trade saw both YM & XM extend on their respective overnight highs as domestic participants reacted to offshore market gyrations.

• To recap, the RBNZ delivered the widely expected 50bp OCR hike. The Bank was not afraid of flagging brisk tightening intentions via its updated OCR projection track, as it looks to return inflation to the target band. The fight against inflation remains paramount in the near-term. Further out, the Bank noted that “once aggregate supply and demand are more in balance, the OCR can then return to a lower, more neutral, level.” The post-meeting RBNZ press conference didn’t contain much in the way of notable dovish offset, as Governor Orr reaffirmed the hawkish rhetoric deployed in the post-meeting statement and accounts of the gathering. That leaves YM +7.5 & XM +6.0 at typing, with the Australia/New Zealand 2-Year swap spread tightening by ~20bp on the day. BBG’s WIRP function shows year-end RBA cash rate expectations as little changed on the day, hovering just above 2.50%. This comes after the spill over from the latest RBNZ decision managed to offset the early Fed repricing-driven move.
• An unexpected Q/Q fall in domestic completed construction work during Q1 (-0.9% Vs. BBG median +1.0%) did little for the space pre-RBNZ.
• RBA Assistant Governor (Economics) Ellis noted that it is not sensible to predict where the cash rate will peak in the current tightening cycle during a Q&A session. She pointed to a need to carefully watch the incoming economic data, tipping her hat to broadening inflationary pressures, while highlighting the differences in the challenges faced by the Australian & U.S. economies.
• The latest round of ACGB Jun-51 supply was smoothly digested, after dealer liaison likely unearthed some demand for the line. Semi and corporate issuance failed to impact the space.
• Private CapEx data headlines domestically on Thursday, providing the latest round of GDP partial data.