RBNZ: A July Rate Cut Not “Programmed In”

Headlines have crossed from the WSJ that US President Trump will soften tariffs on the automotive sector. The WSJ notes that: "President Trump is expected to soften the impact of his automotive tariffs, preventing duties on foreign-made cars from stacking on top of other tariffs he has imposed and easing some levies on foreign parts used to manufacture cars in the U.S., according to people familiar with the matter." (see this link).  

• Reuters added that these actions are expected to take place tomorrow, per comments from the Whitehouse(which should be Tuesday US time).
• At this stage the market reaction hasn't been large in the US equity futures space, which still sit modestly down in the red (but up from session lows).
• We did see late last week hints that tariff reprieve could be coming for the autos sector.  

The overnight range was 141.99 - 143.89, Asia is currently trading around 142.25. A strong bounce late in US stocks off their lows, but the price action in USD/JPY did not reflect it. The market seems  to believe this bounce in risk could be fleeting and is looking to add to JPY longs on any meaningful bounce.

• There seems to be a wait-and-see mood ahead of the Bank of Japan's monetary policy meeting and the release of U.S. employment statistics this week.
• (Bloomberg) - “ The Dallas Fed’s gauge of Texas manufacturing activity weakened significantly in April, with survey respondents describing tariff- induced turmoil as “chaos” and “insanity”. Business activity plunged to its worst reading since May 2020.”
• Kyodo News, via BBG - “The Bank of Japan is to maintain its interest rate at the current level of around 0.5% at its monetary policy meeting to be held on the 30th and 1st May. It is expected to lower its forecast for real gross domestic product (GDP) growth, which is released every three months. The bank will stick to its policy of raising the policy interest rate, but will give priority to assessing the tariff negotiations between the US Trump administration and the Japanese government, as well as trends in financial markets.”
• The Supply on a 143 handle proved to be too much on the day, bounces back to 143 should continue to see some supply, then more importantly the 145/146 area should once more offer good levels for sellers to reengage. 
• CFTC data shows Asset managers continuing to add to JPY longs, leveraged funds are now also beginning to build longs.
• Note Japan markets are closed today. 

Fig 1 : USD/JPY Spot Daily Chart

Source: MNI - Market News/Bloomberg

In local morning trade, NZGBs are little changed despite US tsys finishing near session bests Monday, with 2- to 10-year yields 2-5bps. 

• Underlying bid as Dallas Fed's Texas Manufacturing Survey for April -- the weakest since the start of the Covid pandemic in 2020, as tariff uncertainty weighed heavily on manufacturers in the district, while price pressures remained elevated.
• Meanwhile, the US Treasury's latest borrowing/financing requirements estimates were slightly higher - but broadly in line with - MNI's estimates: $514B for the Apr-Jun quarter, and $554B for the Jul-Sep quarter.
• Finance Minister Willis said in her Pre-Budget speech that NZ’s government is cutting new spending in this year's budget due to US tariffs threatening global growth and the country's fiscal recovery. The operating allowance for Budget 2025 will be cut to NZ$1.3 billion from NZ$2.4 billion to allow for a return to budget surplus in 2029.
• NZ filled jobs rose 0.2% m/m in March versus a revised 0% in February.
• Swap rates are 1-2bps lower.
• RBNZ dated OIS pricing shows 27bps of easing priced for May, with a cumulative 82bps by November 2025.
• On Thursday, the NZ Treasury plans to sell NZ$250mn of the 4.50% May-30 bond, NZ$150mn of the 4.25% May-34 bond and NZ$50mn of the 5.00% May-54 bond.