- The NZD / USD witnesses strong selling on Thursday and falls to new weekly lows.
- Nervousness over COVID-19 and upbeat minutes from the FOMC meeting push the USD to three-month highs.
- Risk-off sentiment contributes to the downward pressure around the higher perceived risk NZD.
The pair NZD / USD has continued to lose ground during Thursday’s European session and has fallen to fresh weekly lows around the 0.6955 region in the last hour.
The NZD / USD pair has seen strong selling on Thursday and has extended the pullback from nearly three-week highs, or just above the 0.7100 level touched earlier this week. The sharp intraday decline is due to a modest strength in the US dollar and a sharp deterioration in global risk sentiment, which tends to weigh on demand from the higher perceived risk NZD.
The USD has held steady near three-month highs and it has been supported by FOMC minutes, which indicated that the Fed is moving toward tightening its monetary policy as early as this year. Fed officials agreed that they should be ready to act if inflation or other risks materialize, suggesting that discussions on QE phasing could begin in the coming months.
USD bulls did not appear to be affected by the current drop in US Treasury yields, and took cues from the prevailing risk-off environment. Investors follow concerned about the spread of the Delta variant coronavirus, highly contagious. This has been evident by a sharp decline in equity markets, which has further benefited the safe-haven USD.
Now it will be interesting to see if the bears can maintain their dominant position or if the NZD / USD pair can attract some buying at lower levels. Markets have started to assess the prospects for an interest rate hike by the Reserve Bank of New Zealand (RBNZ) in November. This should act as a tailwind for the NZD / USD pair and should help limit deeper losses.
However, the pair has now moved close to last week’s lows around the 0.6945 region. This is followed by yearly lows near the 0.6925 area, which if broken will be seen as a new trigger for bears and will set the stage for the resumption of the recent NZD / USD downward movement seen over the past month.
Market participants are now awaiting data on initial weekly US jobless claims, which will be released at the start of the American session today. This, coupled with broader market risk sentiment, will influence USD price dynamics and allow traders to seize some short-term opportunities around the NZD / USD pair.
NZD / USD technical levels