NEW ZEALAND: Economy Forecast To Have Developed As RBNZ Expected In Q4

NZGBs closed 2-3bps cheaper but at the session’s worst levels. 

• Outside of the previously outlined NZ PSI and Migration data, there hasn't been much by way of domestic drivers to flag.
• The NZ-AU 10-year yield differential closed unchanged at +9bps. It has traded in a -10bps to +20bps since October.
• Cash US tsys are closed for the Presidents Day holiday.  TYH4 is slightly weaker.
• Swap rates closed 3-4bps higher.
• RBNZ dated OIS pricing is flat to 5bps firmer across meetings today, ahead of the RBNZ Policy Decision on Wednesday.
• The RBNZ decision is widely expected to cut rates 50bp again to 3.75%. Revised staff forecasts will also be published.
• All 22 analysts surveyed by Bloomberg are forecasting a 50bp rate cut and the RBNZ shadow board is recommending 50bp of easing.
• Notably, OIS pricing is 2–19bps firmer than pre-Q4 Labour Market data levels from February 4.
• Nevertheless, 49bps of easing is priced for Wednesday, with a cumulative 111bps by November 2025.
• Tomorrow, the local calendar is empty.
• On Thursday, the NZ Treasury plans to sell NZ$250mn of the 4.50% Apr-27 bond, NZ$200mn of the 4.25% May-34 bond and NZ$50mn of the 1.75% May-41 bond.

Yen remains the clear outperformed in the G10 space, the pair last near 151.55/60, close to to session lows (151.51). The yen is up 0.50%, with NZD the next best performer up close to 0.25%. For USD/JPY techs, downside focus will remain on recent lows of 150.93 (recorded on Feb 7).  

• The earlier Q4 GDP beat was a clear yen positive, although after underperforming last week's G10 move against the USD, there is still room to play catch up.
• A further BOJ rate hike is arguably not priced in until the Sep meeting, although the end July meeting is close to full priced.
• On the data front we get the Jan national CPI this Friday. Note on Wednesday BoJ board member Takata speaks in Miyagi.  
• FX options volumes are large at this stage, under $1bn, with higher volumes in USD/CNY per DTCC. The 1 month risk reversal is off recent highs at -1.205 is still above earlier Feb lows (-1.69).
• Versus current spot, the largest expiring strikes for the coming week are center at 154.00 (just over $5bn), with close to 1.7bn at 152 and 154. 149.00 has $1.2bn worth of option expiries for the coming week.
• Futures volumes have ticked up but look normal for this time of day. 

At the Tokyo lunch break, JGB futures weaker, -24 compared to the settlement levels, and at session lows.

• A clear downtrend in JGB futures firmed further, with the latest fresh cycle lows reinforcing the condition. Note too that MA studies on the continuation chart are in a bear-mode setup, highlighting a clear downtrend. The 140.00 psychological handle has been pierced. Markets have shown through 139.38, a Fibonacci projection. For bulls, a reversal would open 142.73 and 144.48, the Dec 9 and Nov 11 high respectively. Gains would be considered corrective.
• Japan's preliminary Q4 GDP was above market expectations. Q3 also saw positive revisions. The q/q annualized outcome was +2.8% versus 1.1% forecast. In q/q terms, this was 0.7% (0.3% was forecast, while Q3 was revised up to 0.4% from 0.3% originally reported).
• Cash US tsys are closed for the Presidents Day holiday.  TYH4 is slightly weaker.
• Cash JGBs are 2bps cheaper to 1bp richer, with a flattening bias. The benchmark 10-year yield is 1.2bps higher at 1.374% versus the cycle high of 1.377%.
• Swap rates are 1-2bps higher. Swap spreads are wider.