NZD/USD dollar down nearly 2%.
The kiwi dollar is in absolute freefall today. With China cutting rates and dairy prices continuing to decline, the market has quickly become infatuated with the idea of an RNBZ rate cut on June 11. That may still be early but the OIS market has now fully priced in a 25-bps cut at the Sept 10 meeting.
The interest rate futures market has lowered implied probabilities about 4 basis points in the past four days, that's not enough to justify the rout in the kiwi. The second factor is an overall rise in bond yields. It appears to me that carry trades funded in dollars or euros are fleeing and that's spilling over to NZD.
A kiwi 10-year yields 3.55% and with the T-note up to 2.23%, the different may not be enough to justify hanging onto the trade. Technically, there is virtually no support until 0.7200.
NZD/USD tumbling
AUD/NZD also rose above the 200-day moving average for the first time since November.
AUD/NZD above 200-dma
The larger takeaway here is to be cautious of broader trouble. When the carry trade gets cleared out, larger problems and risk aversion often follow.
