- NZD/USD witnessed selling for the third day in a row and pulled back further from the yearly high.
- The Fed’s dovish outlook, high US bond yields supported the USD and put pressure on it.
- A positive risk tone could cap the safe-haven USD and limit losses for the kiwi perceived as riskier.
The pair NZD/USD It continued to lose ground during the mid-European session and fell to a more than three-week low around 0.6850 in the last hour.
The pair continued this week’s sharp retracement decline from the 0.7035 region, or the highest level since November 2021, and witnessed some follow-on selling for the third day in a row on Friday. The downward trajectory was exclusively sponsored by the explosion of the US dollar, reinforced by the aggressive outlook of the Federal Reserve.
In fact, the FOMC minutes for March 15 and 16 released on Wednesday showed that policymakers were poised to raise interest rates by 50 bps at upcoming meetings. In addition, there was general agreement on reducing the Federal Reserve’s massive nearly $9 trillion balance sheet to a maximum rate of $95 billion per month to tighten financial conditions.
This, coupled with concerns that the recent surge in commodity prices will put upward pressure on already high consumer inflation, pushed US Treasury yields to multi-year highs. The combination of supportive factors helped the USD extend its one-week uptrend and jump to the highest level since May 2020.
The drop on Friday could be further attributed to some technical selling below the very important 200-day SMA. That said, a nice rally in the equity markets kept traders from making aggressive bullish bets on the safe-haven dollar. This could help limit further losses for the perceived riskier kiwi, at least for now.
In the absence of major economic releases to move the US market, US bond yields will continue to play a key role in influencing USD price dynamics. Traders will take more account of developments surrounding the Russia-Ukraine saga, which should boost market risk-off sentiment and provide some lift to the NZD/USD pair.
Technical levels
Source: Fx Street
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