RBNZ Maintains Wait-and-See Approach Despite CPI Indications

The Reserve Bank of New Zealand (RBNZ) continues to adopt a cautious approach, refraining from making immediate changes to its monetary policy despite the latest inflation data. This wait-and-see stance comes even as the Consumer Price Index (CPI) shows signs of an inflationary trend.

In parallel news from the European Central Bank (ECB), Dutch member Klaas Knot’s remarks this month have stirred the markets. Known for his hawkish views on monetary policy, Knot’s comments came just before the blackout period. His statements appeared designed to provoke a last-minute repricing of ECB policy rate expectations, especially given his reputation for adopting a more neutral position. The low volume of trading heightened the impact of these movements.

If Knot thought that adhering to the party line of “data-dependent for September” would go unnoticed on a day when the main focus was on the Tour de France’s individual time trial (ITT), he was mistaken. Regardless of Knot’s intentions, European core bonds gained ground, outperforming others in the market.

Prior to Knot’s comments, markets had factored in a second 25 basis point rate hike by the ECB in either September or October. This expectation has now shifted to December. German yields fell between 8 and 13 basis points across the yield curve, with the shorter end slightly outperforming. The German 10-year yield is currently testing the incoming trend line that connects the lows of March and June.

Across the Atlantic, US Treasuries echoed the movement in European bonds, albeit with added volatility surrounding the release of June retail sales data. The headline figure came in below consensus, but upward revisions to May and a better outcome for the retail control group balanced the scales. US Treasuries eventually settled close to opening levels during US trading hours. Changes on the US yield curve varied, with the 2-year yield increasing by 2.5 basis points and the 30-year yield decreasing by 3.3 basis points.

In the currency market, the EUR/USD pair closed nearly unchanged at 1.1229 for the third consecutive session, after testing key resistance at 1.1274. Signs of a potential reversal are beginning to emerge.

The USD/JPY pair extended gains, reaching 139.50 in early trading. The Governor of the Bank of Japan (BoJ), Masayoshi Ueda, tried to preempt Friday’s inflation numbers by stating that the BoJ’s monetary policy stance would remain unchanged unless the underlying assumptions shifted.

Meanwhile, the British pound lost ground following lower inflation numbers for June. Despite this temporary relief, it is unlikely to dissuade the Bank of England (BoE) from implementing a second consecutive 50 basis point rate hike in early August.