NZD/USD bulls could be about to make a significant move

NZD/USD is under pressure by some 0.2% and falling into the final stage of the North American session at month's end. The bird has travelled between a high of 0.6154 and a low of 0.6110 so far on Wednesday.

''The Kiwi is little-changed this morning after bouncing around in a fairly confined range overnight as markets continued to digest more hawkish messaging from central banks, higher than expected European inflation, and further weakness in equities and cryptocurrencies,'' analysts at ANZ Bank explained. 

The record-high inflation in parts of the world is compounding recession fears stalking markets on Wednesday which is serving as a bullish plate for the US dollar and US Treasury yields. this is a weight for the antipodeans, given their high beta status to global stocks. 

Equities on Wall Street ended the month with their fourth straight daily decline on Wednesday, cementing the weakest August performance in seven years. Selling pressure accelerated on the back of last week's speech by the Fed Chair Jerome Powell who advocated for keeping monetary policy tight "for some time". This dashed hopes of more modest interest rate hikes, with the benchmark index down more than 5% over the past four trading sessions. Traders are now pricing in about a 70% chance of a 75 basis points Fed rate hike next month, according to data from Refinitiv.

On Wednesday, the two-year US Treasury yield, which is relatively more sensitive to the monetary policy outlook in the US, hit a 15-year high at 3.499% overnight but eased back to 3.446%. The 10-year Treasury yield, which hit a two-month high of 3.153% on Tuesday, stood at 3.123, easing back from 3.164%%.

''In this sort of environment, with global recession fears percolating, FX markets attuned to a risk-off vibe, UK gripped by political/energy/inflation woes, Europe struggling under the weight of energy prices, drought and a war on its back doorstep, and the Bank of Japan resolute in its desire to maintain an easy policy, markets will naturally be attracted to the USD, and in blunt terms, that is where the risks lie for the Kiwi,'' the analysts at ANZ Bank said.

''The idea that the RBNZ might be done after a couple more hikes isn’t helping either (we think the risks are skewed to more, but the market doesn’t think that).''

Meanwhile, much will depend on this week's US jobs data, in the Nonfarm Payrolls report. Analysts at TD Securities explained that ''employment likely continued to advance robustly in August but at a more moderate pace following the booming 528k print registered in July. High-frequency data, including Homebase, point to still above-trend job creation.'' The analysts also look for the Unemployment  Rate to drop by a tenth for a second consecutive month to 3.4%, and for wage growth to advance at a firm 0.4% MoM (5.3% YoY).

NZD/USD technical analysis

Despie the bullish environment for the greenback, from a technical standpoint, there are prospects of a move up to complete a Gartley pattern on the 4-hour chart over the first part of the new month. In the meanwhile, the price is carving out an M-formation on the 4-hour chart that would be expected to result in a pullback to meet the neckline in a 50% mean reversion for the coming sessions. A break of 0.6150 will leave the bulls back in control.