RBNZ to hold off from rate cuts for the forseeible future, how much is already baked into the cake?

The Reserve Bank of New Zealand will now be a theme in markets following today's surprise drop in the New Zealand Unemployment Rate. 

The dead give away has been the reaction in the rate markets.

The NZ government bond yields in the 10-year notes have jumped over 8% following the data from 1.2330% to 1.3320%.

The 2-year has rallied a colossal 14.24%.

A rate cut is no longer expected from the RBNZ which has given flight the bird. 

Analysts at ANZ Bank note that the unemployment rate unexpectedly fell in the December quarter from 5.3% to 4.9% and had this to say: 

''This was below our forecast, the RBNZ's November MPS forecast and market consensus, which all sat at 5.6%. The labour market is unambiguously in a better position and we no longer expect the RBNZ to cut the OCR again this cycle."

Meanwhile, analysts at Westpac explained, '''the surging housing market, surprisingly high inflation, and now falling unemployment all make it obvious that the combined efforts of the Government and Reserve Bank to support the economy through the Covid shock have had a much more powerful effect than anticipated.''

''This will call into question just how much ongoing stimulus, particularly over the period when the Covid vaccine is rolled out and global travel resumes.''

Market implications

 New Zealand dollars saw their net-positioning drop by around 3% of open interest in the latest CFTC data, but it was starting from a very high level of net longs.

This made for the most overbought G10 currency and vulnerable to paring back.

However, this data and the sentient around the RBNZ will potentially see a longer net positioning for longer. 

The NZD / USD rose 0.25 cents on the result and AUD/NZD continues to bleed heavily within a daily bearish trend. 

However, given that the fact may have already been partly baked into the cake, (the Unemployment Rates has been on a steady downward path), there could be some room for some profit-taking now that the cross has met a critical demand zone. 

After all, the governor of the bank, Adrian Orr, has been very clear that he wants rates to be lower for a ''very long period'' of time.

AUD/NZD daily chart