NZD, JPY, EUR flows: USD softer on RBNZ, lower US yields

The USD has slipped back against the JPY and NZD overnight, but has otherwise been fairly steady. NZD strength relates to the RBNZ monetary policy decision, which delivered the expected 50bp rate cut, but involved a slightly less dovish outlook, while there was also some initial confusion around the announcement (see here). The NZD rallied but we still don’t see much potential for sustained gains against the AUD, with yield spreads substantially in the AUD’s favour.

JPY strength was less event related and more related to the decline in US yields seen after Scott Bessent’s appointment as Treasury Secretary. While JPY gains were interrupted on Tuesday by the impact of Trump’s tariff comments on Monday night, USD/JPY has now moved back in line with the yield spread correlation seen in the last few months (although it remains above levels consistent with the longer term correlation). There is also some potential for EUR/USD to edge back above 1.05 on yield spread inspired moves.