- NZD/USD catches some buying on Wednesday and reverses its weekly losses.
- A modest USD pullback from a two-year high offers some support for the pair.
- Expectations of an aggressive rate hike from the Fed should limit USD losses and limit the pair’s rise.
The pair NZD/USD moves firmly higher during the European session on Wednesday and makes new weekly highs around the 0.6780 region.
Following the previous day’s two-way price movement, the NZD/USD pair moved higher on Wednesday and moved away from its lowest level since late February hit earlier this week. Some profit taking around the US dollar from the two-year high is seen as a key factor offering support to the pair, although any significant recovery still seems elusive.
The growing acceptance that the Fed would tighten monetary policy at a faster pace to reduce inflation should continue to act as a tailwind for the dollar and limit the pair’s rise. NZD/USD. Indeed, markets have been pricing in several 50 basis point rate hikes by the Fed and these expectations were bolstered by aggressive comments from several FOMC members.
Chicago Fed President Charles Evans said Tuesday that he is “comfortable” with a round of rate hikes this year that includes two 50 basis point hikes. This comment was added to that of Minneapolis Fed President Neel Kakari, one of the more dovish members of the FOMC, who said that policymakers will need to take even more aggressive action to reduce inflation.
This, along with inflationary fears, pushed the 10-year US government bond yield to a level not seen since late 2018, which should support the dollar. Apart from this, the prevailing cautious market sentiment could fuel some safe-haven money flows into the USD and continue to limit any further gains for the perceived riskier NZD.
Market participants now await the US economic calendar, with the release of Existing Home Sales. This coupled with US bond yields should influence USD price action and provide some momentum to the NZD/USD pair. The focus is on the latest CPI consumer inflation figures from New Zealand, due to be released during the Asian session on Thursday.
NZD/USD technical levels
Source: Fx Street
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