- The NZD / USD witnessed a moderate / limited price action within a range on Tuesday.
- The risk aversion momentum acted as a headwind for the riskier kiwi.
- Raising bets on another RBNZ rate hike helped limit the pair’s losses.
The pair NZD / USD it alternated between tepid gains / minor losses throughout the early part of the European session and was last seen trading in neutral territory, just above 0.7150.
The pair struggled to capitalize on its gains recorded in the last two trading sessions and witnessed some selling near the 0.7175 resistance zone on Tuesday. A softer risk tone turned out to be a key factor weighing on the kiwi perceived as riskier, although the decline remains limited.
Investors became wary of the growing acceptance that mounting inflationary pressures could force major central banks to raise interest rates earlier than expected. Nervousness sparked some profit-taking in equity markets following the recent sharp rise to record highs.
Meanwhile, the risk aversion momentum, coupled with the dovish outlook from the Fed, triggered a further downward leg in US Treasury yields This, in turn, forced the US dollar to prolonging its decline from annual highs touched on Friday and helped limit deeper losses for the NZD / USD pair.
Aside from this, the rising bets for another rate hike by the RBNZ should act as a tailwind for the pair and attract some buying on the lower dips. That said, traders could refrain from making further bullish bets ahead of Wednesday’s release of US consumer inflation figures.
Markets have been weighing the possibility of an interest rate hike by the Fed in 2022 amid concerns about a faster rise in inflation. The speculations were reaffirmed by sudden aggressive comments from a host of FOMC members, indicating that the central bank could raise rates.
The October US CPI report will influence the Fed’s rate hike expectations and USD price dynamics, which in turn should provide further directional momentum to the NZD / USD pair. Meanwhile, traders could follow the cues from Tuesday’s release of the US Producer Price Index (PPI) and comments from Fed Chairman Jerome Powell later during the early days of the US session. .