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Pullback Considered Corrective


Holding Above Recent Lows


BLOCK, Large 3Y Midcurve Put Condor

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The dust has just settled after yesterday's hawkish musings from the RBNZ and focus turns to the quarterly labour market report, the final major data release ahead of the next MPC meeting. Most analysts expect that the labour market has tightened further over the second quarter, with BBG consensus looking for a drop in the unemployment rate to 4.4%, amid labour shortages and rapid increase in job ads.

  • The Reserve Bank yesterday expressed intention to tighten mortgage lending standards and signalled the need to consider "when and how we would return interest rate to more normal levels," with the next opportunity to do so provided by the August MPS.
  • Hawkish RBNZ repricing pushed the kiwi higher on Tuesday, making it the best G10 performer. The OIS strip prices an ~88% chance of a 25bp hike to the OCR come the end of the August meeting, with three full hikes by mid-2022 now locked in.
  • circulated an opinion piece this morning, noting that the RBNZ has taken some pressure to hike off itself by reaching to its macroprudential toolkit, but aforementioned comments suggest that hawkish overtones are becoming increasingly pronounced. Westpac observed that the RBNZ's announcement was "seen as working with rather than against the looming tightening cycle".
  • The latest reading of CoreLogic House Price Index released yesterday advanced +24.8% Y/Y in July, as property price inflation accelerated from +22.8% Y/Y recorded in June. CoreLogic commented that the RBNZ has "a level of comfort to lift the OCR without major concern of it having too negative an effect on values".
  • Spot NZD/USD trades at $7023 at typing, 6 pips higher on the day, with the kiwi outperforming its G10 peers at the margin. A firm push through Jul 15 high/50-DMA at $0.7045/54 would provide a bullish signal, bringing the key Jul 6 high of $0.7105 into view. Bears look for a pullback under Aug 2 low of $0.6953, towards Jul 28 low of $0.6902.