Thursday 7th February 2019
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New Zealand's two-year swap rate fell to a historic low after weaker-than-expected jobs numbers spurred investors to price in a greater chance of a rate cut.
The two-year swap fell as low as 1.7980 percent and recently traded at 1.8175 percent versus 1.8980 percent Tuesday ahead of the public holiday. The rates fell after Statistics New Zealand said the seasonally adjusted unemployment rate rose to 4.3 percent in the three months ended Dec. 31, from a revised 4 percent in the September quarter. Economists had expected it to be 4.1 percent.
Markets moved from pricing a 54 percent chance of a rate cut this year to a 66 percent chance after the data.
"The swap rates from two through to five years are all at historic lows. They have all gone through the lowest rates ever, that includes the GFC, that includes anything basically," said Ross Weston, head of trading for Kiwibank.
He said the rates were already under pressure early today after the Reserve Bank of Australian governor Philip Lowe made a dovish u-turn Wednesday, opening up the possibility of a rate cut across the Tasman in a speech to the National Press Club of Australia.
Lowe's speech coupled with the jobs data was "a bit of a double whammy," Weston said.
While the unemployment rate is still hovering around a 10-year low, "it's just another piece of data that has underwhelmed slightly," he said. In late December, Stats NZ reported the economy expanded 0.3 percent in the September quarter, down from a 1 percent rise in the prior quarter. Economists had expected the economy to expand 0.6 percent.
Weston said the swap rates could push lower, but in order to move further will need New Zealand's central bank next week to indicate a cut is a growing possibility.
Economists said today subdued wage inflation and the weaker-than-expected jobs numbers will likely mean the Reserve Bank will be more cautious at next week's review. The central bank has changed its regime and will announce its cash rate decision at 2pm on Wednesday, ahead of it being implemented on Thursday.
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