NZD/USD hit a new low but rebounded as US 10-year bond yields turned around after hitting 5%. There was no catalyst for the turnaround other than talk of short covering as yields hit 5%, which intensified in ‘reef fishy’ market conditions.

It is impossible to gauge accurately what role momentum played on the way up in yields and thus it’s equally impossible to know how long this recent dip will last (which is key for FX given its impact on the Dollar), but we’re cautious, and that leaves us worried about an NZD reversal.