- NZD/USD gained traction on Thursday and snapped four consecutive days of the losing streak.
- The prevalent risk-on mood benefitted the perceived riskier kiwi amid a subdued USD demand.
- Hawkish Fed expectations, rebounding US bond yields should underpin the USD and cap gains.
The NZD/USD pair maintained its bid tone through the early European session and was last seen hovering near daily tops, with bulls looking to build on the momentum beyond the key 0.7000 psychological mark.
The pair stalled its recent sharp pullback from the vicinity of the 0.7100 mark and gained some positive traction on Thursday, snapping four consecutive days of the losing streak. The underlying bullish sentiment in the financial markets benefitted the perceived riskier kiwi. Apart from this, a subdued US dollar demand extended some support to the NZD/USD pair.
Despite the supporting factors, the uptick lacked any bullish conviction and runs the risk of fizzling out rather quickly. The markets have been speculating that the Fed will tighten its monetary policy if price pressures continue to intensify. This should continue to act as a tailwind for the greenback and keep a lid on any meaningful upside for the NZD/USD pair.
The market expectations were cemented by Wednesday's stronger ADP report and hawkish comments from Dallas Fed President Robert Kaplan. The monthly data published by the Automatic Data Processing (ADP) Research Institute on Wednesday revealed that the US private-sector employers added 692K jobs in June as against market expectations for a reading of 600K.
Meanwhile, Dallas Fed President Robert Kaplan – in an interview with Bloomberg TV – noted that they are seeing a broadening of price pressures and would prefer to taper sooner than the end of the year. Apart from this, a strong pickup in the US Treasury bond yields supports prospects for additional near-term USD gains and cap gains for the NZD/USD pair, at least for now.
Market participants now look forward to the release of the US ISM Manufacturing PMI. This, along with the US bond yields, might influence the USD price dynamics. Traders might further take cues from the broader market risk sentiment to grab some short-term opportunities around the NZD/USD pair, though the focus will remain on Friday's US jobs report (NFP).
Technical levels to watch
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