BNY analysts argue market expectations for two more RBNZ hikes by year-end are excessive amid stable inflation and foreign bond demand.
Foreign investors now hold 58.9% of New Zealand government bonds, up from 57.7% in June, with nonresident holdings rising to NZ$122.47bn from NZ$115.53bn. Nonresident repo holdings declined slightly to NZ$11.02bn from NZ$11.09bn.
NZD/USD trades above its 12-month average, but BNY’s Geoff Yu questions the market’s pricing of two additional RBNZ rate hikes by year-end. While domestic activity remains strong, well-anchored inflation expectations and stable nontradables inflation reduce the urgency for further tightening.
Yu notes that if the RBNZ overlooks headline price risks, the case for additional hikes weakens significantly.