Interest rates drop might be further away

Hawkish commentary by Fed chair Jerome Powell added to US rates, as did hawkish comments from ECB officials keen to stress the need for higher policy rates.

With the RBNZ dug in, having adopted what governor Adrian Orr dubs the “watch, worry and wait” phase, ANZ thinks the hurdle for OCR hikes in the next few months is high.

“If global central banks press on with hikes, and stress that cuts are a long way off, the risk is that local markets back away from pricing in deep cuts over the next 12-18 months – 87bps of cuts are priced in by next October,” says Sharon Zollner, ANZ chief economist.

“That, in turn, poses upside risks to short-end swap rates. Local long-end rates are at the upper end of trading ranges but haven’t broken new highs. Again, we see upside risks,” she says.