New Zealand’s Bonds Surge, Currency Sinks as Virus Case Found
(Bloomberg) -- New Zealand’s benchmark bond yield tumbled with the currency as the discovery of a local virus case prompted the government to impose a lockdown and damped speculation of an imminent rate hike.
New Zealand’s dollar slid as much as 1.6% to 69.07 U.S. cents, while the benchmark 10-year bond yield dropped as much as 10 basis points to 1.72%, the steepest decline since March. Prime Minister Jacinda Ardern announced a three-day lockdown after the country reported the first community case of Covid since February.
The news sent shockwaves across markets as it undermined bets on a hike of the official cash rate, which was expected to be announced at the Reserve Bank of New Zealand’s policy review on Wednesday in Wellington. An outbreak of the highly infectious delta strain of the virus could alter the outlook of the economy, which has been overheating.
“This case is unlikely to be an isolated event, so the prospect of more cases is likely to grow,” said Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities in Singapore. “This Covid case will clearly put the projection on the official cash rate and other forecasts into question.”
Positioning ahead of the RBNZ policy decision was rocked by the virus report, with New Zealand dollar bulls cutting long positions, according to Asia-based traders. Investors now see a less than 80% chance of the RBNZ raising rates on Wednesday, down from more than 100% yesterday, swaps data show.
Australia’s dollar extended a drop along with the kiwi, sliding as much as 0.8% to 72.78 U.S. cents, the lowest since November.
New Zealand will be placed in lockdown at midnight tonight after discovery of a single case in Auckland, Ardern said at a news conference in Wellington. Auckland, the nation’s largest city, and the nearby Coromandel region will be in lockdown for seven days.
New Zealand has run a successful elimination strategy, defined as having zero tolerance for new cases, which has limited the South Pacific nation to fewer than 2,600 confirmed cases and just 26 deaths. The country passed 2.5 million vaccination doses earlier this week. Ardern yesterday said 40% of those aged 16 or more have had at least one dose.
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