Forex
NZD/USD Bears Out as Rare Yield Gap Widens
The New Zealand dollar (NZD) has been under pressure against the US dollar (USD) due to a widening gap in their two-year yield advantage, which has reached rare territory.
The NZ-US two-year spread has blown out to around 87.5 basis points, placing it at the bottom 2% of observations since 2000.
This shift in relative front-end interest rates is a key driver behind the bearish trend in the NZD/USD pair, which has been in place since late August.
The 20-session correlation between daily moves in the pair and daily changes in the NZ-US two-year spread has climbed to around +0.81, putting it near the 99.6th percentile of observations since 2000.