Rapid Market Response As RBNZ Calls Time On Money Printing


The Reserve Bank of New Zealand surprised the market today by announcing that it will end its bond buying program within the next 10 days.

Wednesday July 14, 2021, 6:21 p.m.

by BusinessDesk

Currency and bond traders reacted immediately, pushing interest rate swaps and the New Zealand dollar higher.

Kiwibank chief economist Jarrod Kerr said interest rate swaps had jumped 8-10 basis points with “more rate hikes to come”.

The yield on a 10-year government bond rose more than 7 basis points, with similar moves across the yield curve. ANZ chief economist Sharon Zollner said the market is now forecasting a 50% chance of an official cash rate hike next month.

The kiwi jumped half a cent from 69.64 US cents before the 2pm release to peak at 70.22 US cents afterwards.

Stock markets reacted more moderately, with the benchmark falling half a percent as stock prices retreated on the prospect of rising interest rates.

The S & P / NZX 50 Index lost 65.26 points, or 0.5%, to 12,719.68. Turnover was $ 207 million.

Offshore markets set the tone for this decline after US inflation data prompted fixed interest rate traders to anticipate rate hikes in America.

“Stock market sentiment has deteriorated on signs that earlier rate hikes may be needed,” said ASB economist Mike Jones.

The New Zealand market had previously assessed a 25% chance of a rate hike at the next RBNZ meeting in August, but that possibility is now seen as twice as likely after bond purchases abruptly ended.

The stock prices of dual-listed Australian banks fell after the announcement.

Westpac Bank fell 1.6% to $ 26.82, ANZ Bank fell 1.8% to $ 29.39, and boutique lender Heartland Group fell 2% to $ 1.51.

The majority of stocks in the index fell, led by Vista Group International, which slipped 3% to $ 2.23.

Real estate and utilities stocks were among the weakest of the day. Precinct Properties was down 2.9% to $ 1.68, Contact Energy fell 2.5% to $ 8.19 and Investore Property was down 2.4% to $ 2.00.

Travel booking firm Serko posted the biggest gain of the day, up 2.4% to $ 7.31.

In currencies, the trade-weighted index stood at 74.07 by 3pm, up from 74.01 yesterday.

The kiwi was trading at 93.73 Australian cents against 93.47 cents, 77.24 yen against 77.29 yen, 59.33 cents euro against 59.00 cents, 50.59 British pennies against 50.41 pence and 4 , 5,263 Chinese yuan against 4.5285 yuan.

Tags: Market Close

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