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NZD/USD pulls back below 0.6500

  • NZD/USD has pulled back from previous session highs of 0.6545 as the dollar trims intraday losses.
  • The pair is back below 0.6500 and on track for its worst monthly performance since mid-2015.
  • The US dollar has been strong this month amid a combination of aggressive bets from the Fed plus safe haven demand.

A rebound in US dollar strength, which has eased on Friday amid month-end profit-taking, coupled with a rebound in US yields following data showing wage pressures building in the first trimester, the NZD/USD pulled back from intraday highs at 0.6540 to trade back below 0.6500 and close to multi-month lows once again. The latest batch of US data showed underlying inflationary pressures (as measured by the core PCE price index) eased in March, but a larger-than-expected rise in the employment cost index during the first quarter.

That appears to have resulted in markets increasing their bets on Fed tightening, thus a rally in US yields (which has been sharper at the short end of the curve) caused the dollar to reverse some of your earlier intraday losses. NZD/USD is currently trading at 0.6485, sideways for the day, but looks poised to close the week down 2.2%, which would mark a fifth straight week in the red. As a result, the pair appears to have dropped nearly 6.5% this month, its worst monthly performance since mid-2015.

NZD/USD, like many of its major G10/USD pairs this month, appears to have fallen victim to a combination of bullish USD factors, including further tightening bets from the Fed and safe-haven demand amid concerns about global growth and rising geopolitical risks as economic/military tensions between Russia and NATO and China closures escalate. Next week will be important for the pair as the Fed is expected to raise interest rates by 50 bps and signal its intention to move rates closer to 2.5% by the end of the year and also announce quantitative tightening plans in addition to a barrage of top-tier US data (official employment report plus ISM business surveys).

But data from New Zealand will also be in the spotlight with the release of first-quarter labor market figures on Wednesday. These data, if they continue to show a super tight job market in New Zealand, may provide the Kiwi with much needed support, should it result in a build up of tightening bets from the RBNZ. One advantage the Kiwi has over other G10 currencies that could help it hold its own against Fed-driven dollar strength is the fact that the RBNZ is arguably the most aggressive central bank in the G10 at the moment.

Technical levels

Source: Fx Street

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