Forex Flash: RBNZ rate hike expected within 12 months time – BNZ

Across the swap curve, now, NZ yields have convincingly broken out of their eight-month ranges. A string of stronger-than-expected domestic data releases saw NZ swap yields rise 13-20bps last week – Friday’s strong retail sales data was sufficient to boost NZ swap yields a further 2-5bps.

The market ended the week fully pricing a 25bps rate hike from the RBNZ by 12 months’ time. According to the BNZ Research Team, “We continue to expect a first hike in December and steady hikes thereafter. We see the OCR moving to a cyclical peak of 4.50% in early 2015. Market swap pricing is currently consistent with an OCR at just 3.25% by early 2015, and at only 4.00% in five years’ time. Ultimately, we therefore see swap yields have a lot further to rise.”

Moreover, “We still believe there will be periods where yields get knocked lower when market optimism is undermined. However, we no longer feel that the bottoms of previous trading ranges are likely to be revisited. The momentum in the NZ economy seems to have convincingly turned. We would therefore now be looking more actively for opportunities to hedge against future rate hikes – dips in yields present these opportunities.” they add.