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NZD / USD turns lower after hitting multi-month highs, falls back below 0.7200

  • The NZD / USD is witnessing a modest pullback from the multi-month highs hit early Thursday.
  • Softer risk sentiment and high bond yields benefit the safe-haven USD and put pressure on the pair.
  • Rising expectations for a further rate hike from the RBNZ warrant caution for aggressive bears.

The pair NZD / USD extends its retracement decline from multi-month highs and it is trading near the lower end of the daily trading range, around the 0.7175 region.

After having risen to the highest level since June 11 early this Thursday, the NZD / USD pair has witnessed an intraday shift from the 0.7220 area amid a modest pickup in demand for the US dollar. New concerns about a credit crunch in Chinese real estate have dampened investor appetite for perceived riskier assets. This, in turn, has helped the safe-haven USD to achieve a modest rebound from three-week lows and led to some take and gains around the NZD / USD pair.

The heavily indebted Evergrande Group China said on Wednesday that a $ 2.6 billion deal to sell the controlling stake in its real estate management business failed. The development affected global risk sentiment, which was evident by a generally weaker tone around equity markets. Aside from this, the recent rally in US Treasury yields has been seen as another factor that has acted as a tailwind for the USD.

US bond yields have been climbing higher since late September amid prospects for an early tightening of monetary policy by the Fed. Minutes from the FOMC meeting released last Wednesday reaffirmed that the Fed remains on track to begin reversing its massive US stimulus. it was pandemic as early as November. Markets have also been pricing in the possibility of an interest rate hike in 2022 amid concerns about a faster-than-expected rise in inflation.

Having said that, This week’s economic data in the United States (industrial production data and real estate market) have pointed to a weakening of economic activity and expectations of a more aggressive policy response from the Fed have deferred. This could limit any significant gains for the USD and provide some support to the NZD / USD pair. This warrants some caution for bears amid growing expectations that the RBNZ will raise interest rates further to contain stubbornly high inflation.

What’s more, Thursday’s pullback could still be attributed to some profit taking in the context of the recent strong rally of over 300 pips from near the 0.6900 level touched on October 13. This makes it prudent to wait for a strong continuation sell before confirming that the NZD / USD pair has found a short-term high and positioning for any significant corrective declines.

Market participants are now awaiting the US economic calendar, which includes the Philadelphia Fed Manufacturing Index releases and initial weekly jobless claims. This, coupled with a scheduled speech by Fed Governor Christopher Waller and US bond yields, could sway the dollar later in the American session. Investors will take more indications of the broader market risk sentiment to seize some opportunities around the NZD / USD pair.

NZD / USD technical levels

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