NZD / USD retraces from month-long highs and falls to the 0.7050 region

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  • The NZD / USD is witnessing an intraday pullback from the month-long highs hit early Monday.
  • Optimum expectations from the Fed and the rebound in US bond yields help reignite demand for the USD.
  • A softer risk appetite further benefits the safe-haven USD and puts some pressure on the pair.

The pair NZD / USD is extending its corrective pullback from month-long highs and has fallen to fresh daily lows, about 0.7050, during the first part of the European session on Monday.

The pair has gained some positive traction on the first day of a new trading week and has soared to the highest level since September 16 in reaction to a hotter than expected New Zealand CPI report. The pair’s bulls, however, have struggled to capitalize on the move or find acceptance above the 0.7100 level amid a strong rally in demand for the US dollar.

The prospects for an early tightening of monetary policies by the Fed they pushed the benchmark 10-year US government bond yield above the 1.60% level on Monday. This, coupled with a softer risk appetite, has benefited the safe-haven US dollar and acted as a headwind for the higher perceived risk NZD.

The minutes of the FOMC meeting released last Wednesday reaffirmed that the Fed remains on track to begin reversing its massive pandemic-era stimulus as early as November. Markets have also begun to hide in price the possibility of a rate hike in 2022 amid concerns that the recent spike in commodity prices will fuel inflation.

In the meantime, fears about a faster-than-expected rise in inflation and a sharp slowdown in Chinese economic growth they have fueled concerns about the return of stagflation. In fact, the world’s second-largest economy posted a modest 0.2% growth during the third quarter and the annual rate fell to 4.9% from 7.9% previously.

From a technical perspective, the initial rally faltered near confluence resistance comprising the very important 200-day SMA and a downtrend line extending from the yearly highs. With the latest move down, the NZD / USD pair has broken three consecutive days of winning streak, although the pullback lacks any bearish conviction.

Therefore, it will be prudent to wait for a strong follow-up sell before confirming that the NZD / USD pair has found a short-term high. Market participants are now awaiting the release of US industrial production data to gain some momentum at the start of the US session.

NZD / USD technical levels

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