NZD / USD falls to month-long lows and targets 0.6950 amid stronger dollar

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  • A combination of factors causes aggressive selling around the NZD / USD on Tuesday.
  • Rising US bond yields push the dollar to more than a month high and put pressure on the pair.
  • The aversion to risk helps to move away the monetary flows of the NZD of higher perceived risk.

The pair of NZD / USD continues to lose ground during the first half of the European session on Tuesday and falls to one-month lows, around the 0.6965 region in the last hour.

After the brief pause the day before, the NZD / USD pair has encountered some selling pressure on Tuesday and has resumed its recent retracement decline from the monthly highs, around the 0.7170 region. The downward movement is solely due to a broad strength of the US dollar, bolstered by rising US Treasury yields and risk aversion in the markets.

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Yields of US bonds have been climbing higher after the Fed hinted last week that it will reduce its asset purchases soon. In addition, the so-called dot chart showed policymakers’ inclination to raise interest rates in 2022. The expectation of the likely timing of the Fed’s policy tightening pushed the benchmark 10-year US government bond yield to the level. highest since June 17.

Apart of this, a shift in global risk sentiment has further benefited the safe haven USD and it has moved away the monetary flows of the NZD of higher perceived risk. Investors remain concerned about Evergrande Group’s unresolved debt crisis. This, along with the intensification of the energy crisis in Europe and China, amid rising oil and gas prices, has weighed on investor sentiment.

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The current drop could be further attributed to some technical sales following a sustained break below the key psychological level of 0.7000. A subsequent decline below the previous monthly lows, around the 0.6980 region, could have set the stage for further losses. Therefore, some continuation weakness, towards the 0.6935-30 support area, remains a possibility.

Market participants now expect the testimony of Fed Chairman Jerome Powell, before the Senate Banking Committee. This, along with the release of the Conference Board Consumer Confidence Index and US bond yields, will influence price dynamics around the USD. Investors could take more indications of the broader market risk sentiment for some short-term opportunities around the NZD / USD pair.

NZD / USD technical levels

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