HARKER: FED QT TAPER SHOULD HAPPEN THIS YEAR

NZD/USD has firmed post the Q4 CPI print, with non-tradables inflation coming in stronger than expected (1.1% q/q versus 0.8% forecast). This was above the estimate of local banks and is likely to leave RBNZ wary of domestic price pressures. Headline CPI came out in line with market expectations. More details to follow.

• NZD/USD has pushed back close to 0.6110, we were around 0.6085/90 prior to the release. We sit slightly lower in latest dealings, last near 0.6100. Earlier highs in the week came in just under 0.6140, which could be an upside target on a further move up. Tuesday session lows came in at 0.6062.

In local morning trade, NZGBs are little changed after Q4 CPI prints in line with expectations at +0.5% q/q and 4.7% y/y. Q4 Tradable Prices fall 0.2% q/q, with Non-Tradable Prices up 1.1% q/q.

• NZGB benchmark yields had been 2-4bps higher in pre-CPI dealings after US tsys drifted cheaper during the NY session without first-tier economic data.
• The big event on Tuesday globally was a Bloomberg news story that Chinese authorities were considering a range of measures to help stabilise equity markets. Hang Seng China Enterprises Index (HSCEI) jumped almost 3% on the day but it is still around 10% lower this year.
• Swap rates are 2-3bps higher on the day.
• RBNZ dated OIS pricing is flat to 3bps firmer across meetings. A cumulative 89bps of easing is priced by year-end.
• Today, the NZ Treasury announced plans for five nominal bond auctions in February, with each weekly auction offering being NZ$500m of bonds. The NZDM also said that it expected a new May 2054 nominal bond will be launched, via syndication, before March 31. With five Thursdays in February due to the leap year, February’s issuance will total NZ$2.5bn.

NZD/USD got to new lows in NY trade on Tuesday, the pair dipping to 0.6062 before staging a modest recovery. We track near 0.6090 in early Wednesday trade. This is the first NZD gain in 7 sessions, but only a modest one at +0.18% for Tuesday's session.

• NZD/USD is still sub all key EMAs, note the simple 200-day MA is nearby to current spot (0.6090), while the 50 day sits further south at 0.6045. Highs from Monday came in at 0.6139.
• The Kiwi marginally outperformed the other commodity currencies, which were the only ones to record gains against the USD. The broader BBDXY and DXY indices were higher on a weaker EUR backdrop (BBDXY +0.16%).
• Bear steepening across the Treasury curve prompted a firm dollar recovery. 10yr yield finished up 3bps to 4.14%, 2yr down 1.5bps to 4.376%.
• For NZD/USD we likely saw some positive spill over from positive commodity price gains, while US equity markets finished higher as well (+0.29% for the SPX).
• Coming up in around 10mins is Q4 CPI. It is forecast to show that inflation moderated to lower than the RBNZ forecast in November but due to the tradeables component. Bloomberg consensus expects headline CPI to rise 0.5% q/q and 4.7% y/y, lower than the RBNZ forecast at 0.8% q/q and 5.0% y/y and down from Q3’s 1.8% q/q and 5.6% y/y (see this link here for more details).