AUSSIE BONDS: Holding Cheaper, Light Local Calendar, Strong Nov-29 Auction

The RBNZ cut rates 25bp to 3.5% as was widely projected, due to significant spare capacity and a weaker outlook from “global trade policy” which should result in inflation staying close to the target mid-point. It also said that the economy had broadly developed as it expected in February when it forecast 50bp of easing in Q2. It sees “scope’ for further easing if “appropriate” and will be determined by “the outlook for inflationary pressure over the medium term”. At this stage further easing in May is likely, but size is less clear.

• “On balance” US tariffs are a downside risk to NZ growth and CPI inflation. Most of the MPC believed that trade policy announcements shifted risk around NZ’s inflation outlook to the downside, but some thought that they had increased uncertainty and as such risks “remain balanced at this stage”.
• It also noted that the recent weakening of the NZD would “help to cushion the immediate effect” for lower demand for NZ exports. It added that lower oil prices would not only reduce NZ inflation but also “support domestic consumption”. WTI is down another 3.5% today to be almost 20% lower in April.
• Tariffs will take time to be felt by the global economy and the possibility of further changes to what has only been recently announced adds to the uncertainty of their effect. The response of global supply chains is also unclear.
• The RBNZ observed that higher export prices and weaker kiwi had helped to support primary producers and add to NZ growth but private consumption and residential investment remain weak. However, the full effect of monetary easing to date is yet to be felt. 

NZGBs are holding a twist-steepener, yields -8bps to +16bps, after the RBNZ’s decision to cut the OCR by 25bps to 3.50%, as unanimously expected. 

• Today’s cut was the fifth consecutive, with the RBNZ signalling room for further easing, citing global trade tensions as a threat to growth and inflation.
• The central bank warned that US tariffs, particularly those announced by President Trump, pose downside risks to global activity, potentially affecting NZ’s export demand. As a result, the OCR may fall below the 3% floor previously suggested.
• Finance Minister Nicola Willis echoed concerns, noting that rising trade barriers will make NZ's recovery from the 2024 recession more challenging.
• NZD had a small pop on the outcome, with some participants hoping for a 50bp cut or something a little more dovish.
• Today’s RBNZ decision was an interim rate review, meaning the bank does not hold a press conference or issue new forecasts.
• Swap rates are 8bps lower to 7bps higher, with the 2s10s curve steeper.
• Going into the decision, RBNZ dated OIS pricing was 2-10bps softer across meetings. 29bps of easing had been priced for today, with a cumulative 109bps by November 2025.
• After the decision, ois pricing is 2-4bps firmer across meetings, with 106bps of easing by November 2025.

An additional 50% U.S. tariff on top of the existing 54% duties against China would trigger significant supply-chain disruptions, though the economic impact may be diminished, according to Zhou Mi, a researcher at the Chinese Academy of International Trade and Economic Cooperation. The Chinese government and businesses should work to minimise risk exposure by carefully managing their choice of trading partners, order cycles, and supply-chain interactions, while also preparing for potential fluctuations in supply and pricing, said Zhou. (Source: 21st Century Business Herald)