- NZD/USD gained traction for the third day in a row and soared to a two-week high on Wednesday.
- Risk-on markets were seen as a key factor benefiting the perceived riskier kiwi.
- The pullback in US bond yields undermined the USD and continued to support the ongoing upside move.
The pair NZD/USD rose further during the mid-European session and spiked to a two-week high around the 0.6690 region in the last hour.
A combination of supportive factors helped the NZD/USD pair build on this week’s positive move from the 0.6600 level and gain traction for the third day in a row on Wednesday. Moderating US Treasury yields prompted some US dollar selling. This, coupled with risk-on momentum, further benefited the perceived riskier kiwi and continued to support momentum.
That said, growing market acceptance that the Fed will tighten monetary policy at a faster pace than anticipated should act as a tailwind for US bond yields and limit dollar losses. Indeed, the market has been pricing in the possibility of a 50bp rate hike by the US central bank in March amid concerns about persistently rising inflationary pressures.
Therefore, the market’s focus will remain glued to the release of the US CPI report on Thursday, which could determine the Fed’s short-term policy outlook and influence USD price dynamics. Addressing key data risk, traders could refrain from making aggressive bets, which, in turn, could limit the NZD/USD pair’s upside potential amid the absence of market-moving economic releases.
In the meantime, US bond yields will continue to play a key role in driving USD demand and provide some lift to the NZD/USD pair. Aside from this, traders can take cues from the broader market risk sentiment to take advantage of some short-term opportunities around the pair.
Technical levels
Source: Fx Street
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