- NZD/USD moves lower for the second day in a row and extends retracement of yearly high.
- The war in Ukraine weighs on investor sentiment and weighs on the perceived riskier NZD.
- A modest pullback in US bond yields keeps USD bulls on the defensive and offers support for the pair.
The pair NZD/USD remains under pressure during the European session on Thursday, falling around the 0.6900 level, just a few pips above the 1 1/2 week low hit earlier this Thursday at 0.6889.
The pair found selling for the second day in a row and it has now retraced almost 150 pips from the highest level since November 2021 around 0.7035 touched earlier this week. Market sentiment remains fragile amid Diminishing hopes for a diplomatic solution to end the war in Ukraine and the prospect of more Western sanctions on Russia for his alleged war crimes. This, in turn, was seen as a key factor weighing on the perceived higher risk NZD.
Risk aversion was reinforced by a modest pullback in US Treasury yields, which capped the recent US dollar rally to an almost two-year high and offered some support to the NZD/USD pair. That said, any significant rally seems elusive amid the hawkish outlook from the Fed, which should continue to act as a tailwind for the USD. In fact, the FOMC minutes showed that monetary policymakers were willing to raise interest rates by 50 basis points at upcoming meetings.
The minutes also showed general agreement on reducing the central bank’s huge balance sheet at a maximum rate of 95,000 million dollars per month to tighten financial conditions. This supports the prospects of the appearance of some buying around the USD, suggesting that the NZD/USD pair’s attempted recovery move is more likely to attract further selling at higher levels. Investors are now looking to the US weekly jobless claims data for some momentum at the start of the American session today.
Aside from this, US bond yields will influence USD price action and could create some significant opportunities around the NZD/SD pair. Investors will take further cues from developments around the Russia-Ukraine war, which should continue to play a key role in broader market risk sentiment.
NZD/USD technical levels
Source: Fx Street