NZD: NZDUSD - Good Demand Below 0.5900

TYM5 is dealing at 109-20, -0-03+ from closing levels in today's Asia-Pac session. 

• On Friday, 10-year yields ranged from 4.5270% to 4.5860%, closing around 4.49%.
• The big news over the weekend was President Trump's exemptions on smartphones, computers, and other electronics, though this has been downplayed over the weekend as a procedural step. They will be looking at the whole electronic supply chain.
• The 10-year yield rose almost 50bps in 5 days, one of the biggest moves over that number of days since 1998.
• Several catalysts are being pointed at: hedge funds, basis - traders being squeezed out, and sovereign selling of treasuries as a negotiation tool. These have all added to the pressure.
• Powell - “ Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem”
• John Williams said he expects slower growth, higher unemployment and a pickup in inflation due to US tariff policy and reduced immigration.

Standard Chartered: "Our USD equation was on track throughout Q1-2025 but broke down on 2 April, supporting the view that Trump’s reciprocal tariff announcement may have generated a sea change in attitudes towards US assets. We have argued that the promised US fiscal moves would support yields in a USD-positive way, but the market clearly now has doubts. Recent events may tarnish the USD for an extended period. A successful economic rebound and higher risk-adjusted returns would encourage a return of capital from outside the US, in our view. But there would have to be visible signs of economic policy success;
otherwise, non-US holders of USD assets may just want to get out and stay out.

There is a case that the current USD pessimism (as reflected in the sharpness of recent price action) is overstated. The simultaneous unwind of the basis trade and rise in stagflation fears may be adding to upward pressure on yields and encouraging position unwinds across markets. So it is still possible that the recent asset price moves largely represent traditional risk reduction by market participants rather than dumping of USD
assets by international holders.

Looking ahead, we think the restoration of the higher UST yield = stronger USD equation would be a major sign of normalisation and could enable a USD rebound if
the tax bill goes forward as planned. There is a risk that the bond market would rebel if the fiscal bill meant an even more elevated deficit path, but we think the unwinding of growth pessimism, along with reduced prominence for tariff policy, could lead to renewed USD support."