Talking Points:

  • The New Zealand Dollar depreciated against its major counterparts on Monday
  • Prime Minister Bill English approved an NZD 1 billion housing infrastructure fund
  • Local front-end government bond yields fell, hinting at reduced RBNZ rate hike bets

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The New Zealand Dollar depreciated against its major counterparts on Monday, also suffering its largest decline against the USD in over a month, as Prime Minister Bill English approved a housing infrastructure fund. The project, allocated at NZ$1 billion, is to speed up the delivery of 60,000 units over the next ten years across five different areas including Auckland.

The news crossed the wires around 22:30 GMT, around the same time that local 2-year government bond yields fell hinting at ebbing RBNZ hawkish expectations. As it stands, the priced-in outlook implied in overnight index swaps (OIS) suggests the markets see a better-than-even chance of a hike in March of 2018, but confidence is relatively low at just 52.2 percent.

The RBNZ has opted to use macroprudential tools like loan-to-value ratios rather than rate hikes in its attempt to cool the buoyant housing market. However, an increase in the supply of housing that eases upward pressure on real estate prices might translate into broader cooling of inflation, pushing back the timeline for the start of stimulus withdrawal. This might explain the negative response from yields and Kiwi Dollar.

NZ Dollar Depreciates as Housing Fund Reduces RBNZ Rate Hike Bets