NZD, AUD flows: NZD firmer after RBNZ, AUD has potential to follow

A fairly quiet overnight session has seen the USD maintain a mildly positive tone, helped by the strong rise in the Conference Board consumer confidence index reported yesterday. There isn’t much on the calendar to move markets today, and most pairs are likely to hold close to opening levels.  

The main news overnight was the RBNZ rate cut of 25bps, which was as expected, but generated a positive NZD reaction as the decision was seen as a hawkish easing, with one vote against the cut and comments from RBNZ governor Hawkesby suggesting rates may be close to a turning point. 2 year NZD yields rose 10bps on the decision, and NZD/USD rose 1% to 0.5980.

AUD/USD was dragged up slightly by the NZD move, but was net still lower on the Asia session. We would still see AUD/NZD as biased higher based on the trajectory we have seen in yield spreads and the strong decline in AUD/NZD since February, which was related to a risk negative view of global growth following the initial tariff announcements from Trump. AUD/USD near 0.64 still looks well supported and there should be scope for gains back above 0.65.