- NZD/USD fell on Thursday and reversed overnight gains as it hit a year’s high.
- Bets on Fed rate hikes, a softer risk tone benefited the USD as a safe haven and put pressure on it.
- The drop in US bond yields did not dent bullish USD sentiment or provide any support.
The pair NZD/USD it maintained its offered tone during the American session and was last seen trading near the daily low around the 0.6940 region.
Having faced rejection near the key psychological 0.7000 level, the NZD/USD pair witnessed some selling on Thursday and snapped a two-day winning streak to the highest level since November 2021. The US dollar made a solid recovery and has now reversed the previous day’s losses to a nearly two-week low. This, in turn, was seen as a key factor putting downward pressure on spot prices.
The incoming geopolitical headlines dashed hopes of a breakthrough in Russia-Ukraine peace talks. This, coupled with the growing prospect of new Western sanctions against Russia, moderated investors’ appetite for riskier assets. This was evident from a further bearish extension in equity markets, which fueled some safe-haven flows into the dollar and weighed on the perceived riskier kiwi.
Apart from this, expectations that the Fed would adopt a more aggressive policy stance to combat high inflation acted as a tailwind for the dollar. In fact, markets have been pricing in a 50bp Fed rate hike move in the next two meetings. Bets were firmed up with the release on Thursday of the US core PCE price index, which rose to 5.4% y/y in February from 5.2% in the previous month.
The combination of supportive factors helped offset the ongoing decline in US Treasury yields, which, so far, did little to hamper positive intraday USD movement or provide support for the NZD/USD pair. . However, it would be prudent to wait for a strong follow-up sell-off before confirming that the pair has topped out in the near term and positioning for a deeper correction.
Technical levels
Source: Fx Street
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