NZD / USD declines from multi-month highs, rises modestly around the 0.7160-55 zone

• The upside bets for a further rate hike in the RBNZ took the NZD / USD to more than four-month highs.
• The rally in US bond yields helped reignite demand for USD and limited the pair’s rise.
• Any significant corrective decline could be seen as a buying opportunity.

The NZD / USD pair traded with a positive bias during the first part of the European session, although it has lost a few pips from highs of more than four months touched earlier this Wednesday.

The pair built on the previous day’s bullish breakout momentum past the very important 200-day SMA around 0.7100 and gained traction for the sixth day in a row. The momentum pushed the NZD / USD pair to the highest level since June 11 and was sponsored by mounting bets that the RBNZ will raise interest rates further to contain stubbornly high inflation.

The quarterly CPI report released earlier this week showed consumer prices in New Zealand rose 4.9% year-on-year, a decade-high speed during the July-September period. This comes amid the prevailing mood of risk in the markets, which also acted as a tailwind for the kiwi perceived as riskier. That said, a combination of factors limited the rise of the NZD / USD pair.

The US dollar got some support from the continued rise in US Treasury yields, bolstered by prospects for an early policy tightening by the Fed. In fact, the yield on the US government benchmark bond. The 10-year US shot up to the highest level since May, around 1,672% amid growing market acceptance that the Fed will soon begin to roll back its massive pandemic-era stimulus.

Markets also appear to have begun to weigh in on the possibility of a possible interest rate hike in 2022 amid fears of a faster-than-expected rise in inflation. Added to this, a generally cautious mood in equity markets further benefited the safe-haven dollar and helped keep any additional gains for the perceived riskier kiwi limited.

Investors also seemed reluctant to place further bullish bets on the NZD / USD pair amid overbought conditions on short-term charts and the absence of relevant economic releases in the US markets. That said, the speeches Schedules from Chicago Fed Chairman Charles Evans and Fed Governor Randal Quarles could provide some momentum later during the North American session.

Traders will follow the signals of the broader market risk sentiment to seize some short-term opportunities. However, the bias remains tilted in favor of bullish traders and any significant pullbacks are more likely to remain capped, rather than attracting some buying on dips near the 0.7100 round level.

Technical levels