NZD marks fresh 2023 low as US treasury yields rebound

Key Movers

The US dollar advanced through trade on Wednesday, buoyed by stronger-than-expected home sales and another surge in treasury yields. Ten-year yields climbed 13 basis points and are again closing in on 5%, retracing half the losses suffered early in the week after previously, climbing above 5%. While German business conditions seemingly improved and offered a slightly rosier outlook than Tuesday’s PMI data, the euro still fell under the weight of the USD, consolidating a break below 1.06 and drifting toward 1.0570. While Sterling underperformed, the USD moved back above 150 against the yen. The stronger rates backdrop and the widening gap between US and Japanese yield expectations helped fuel the run, though investors are naturally nervous that the Bank of Japan and Ministry of Finance will intervene to protect the Yen if gains are extended. In other news, the Canadian dollar is weaker after the Bank of Canada opted to leave rates at 5%. While retaining a tightening bias, the bank did downgrade growth projections, citing a decline in consumption and elevated borrowing costs.

Our attention turns now to the European Central Bank and its latest policy update. We expect they will leave rates on hold at 4%, a likely peak for this tightening cycle as policymakers work to avoid a rising stagflation threat.