Dollar’s Got Back

July 07, 2026

Elias Haddad

Favorable US macro backdrop USD supportive. Check out our latest quarterly report for our USD and Fed views.

Japan wage growth slows, raising bar for hawkish BOJ repricing.

RBNZ expected to start raising rates.

USD inched a little higher overnight, clawing back some of the losses triggered by last week’s soft June nonfarm payrolls report. The favorable US macro backdrop remains supportive of USD. The June ISM Prices Paid index signals upside risk to inflation are easing while the ISM Employment gauge shows the labor market is stabilizing.

US economic data on deck today: ADP employment change for the week ending June 20, May trade balance, and June New York Fed consumer expectations survey. Watch out to see if long-term inflation expectations remain anchored.

JAPAN

USD/JPY is consolidating around 162.00 after surging to a 40-year high at 162.84 last week. 30-year JGB yields dropped as much as 10bps to 4.00% on solid buying interest from investors. The 30-year bond sale's average bid-to-cover ratio was 4.55 vs. 2.94 in June, the highest since May 2019.

Japan’s May labor cash earning data was soft due to calendar effect. Total nominal wage growth slowed more than expected to 3.2% y/y (consensus: 3.4%) vs. 3.6% in April. The less volatile scheduled pay growth for full-time workers cooled to a five-month low of 2.4% y/y vs. 2.5% in April.

Overall, Japan wage growth is not a major source of inflation pressure given annual total factor productivity growth of about 1%. Indeed, most of the BOJ’s underlying CPI indicators eased further below 2% in May.

Bottom line: the bar for a hawkish BOJ repricing is high, limiting JPY relief rallies. The swaps curve price in nearly 50bps of hikes to 1.50% in the next twelve months, which looks broadly appropriate.

NEW ZEALAND

The RBNZ policy rate decision is the domestic highlight (10:00pm New York, 3:00am London). We expect the RBNZ to deliver a first 25bps rate hike to 2.50% which can trigger a kneejerk NZD upswing. New Zealand business and consumer confidence surveys are indicative of an ongoing recovery in real GDP growth.

The swaps curve implies 70% odds of a 25bps rate hike today and a total of nearly 100bps of tightening over the next twelve months. That’s roughly in line with the RBNZ policy path projection published in May.

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