NZD/USD Intermarket: Two-year yield differential suggests sharp losses

RBNZ kept rates unchanged earlier today but did trigger speculation that the bank may cut rates in the future given the measures implemented to cool property market has worked.

However, the NZD/USD pair has not really suffered sharp losses. At the time of writing, it was trading largely flat on the day around 0.7337.

NZ-US 2-yr yield differential narrows sharply

New Zealand two-year bond yield is down 9 basis points, while the two-year treasury yield is largely unchanged on the day, hovering around 0.78%. Heading into the FOMC rate decision, the two –year treasury yield was steady around 0.80%.

The spread stood at 1.217 yesterday and at the time of writing the spread was down to 1.132. The narrowing of the spread clearly suggests we could see losses in the NZD/USD pair.

Watch out for NZD crosses

Moreover, sentiment is bearish on US dollar; hence the spot is able to hold its own. However, the narrowing yield differential during the bout of broad based USD weakness means the New Zealand dollar could take a hit against other majors . Don’t be surprised to see GBP/NZD or EUR/NZD rally.