NZD/USD consolidates RBNZ-inspires gains to multi-month tops, above 0.7300 mark

The NZD/USD pair now seems to have entered a bullish consolidation phase and was seen oscillating in a range near three-month tops, just above the 0.7300 mark.

The pair built on this week's gains and caught some aggressive bids – marking the third consecutive day of a positive move – after the Reserve Bank of New Zealand (RBNZ) announced its policy decision. As was anticipated, the RBNZ left its cash rate at a record low level of 0.25% and maintained a 100 billion New Zealand dollars limit for its program of government bond purchases.

The hawkish surprise, however, came from the accompanying rate statement, wherein the central bank outlined that it could gradually hike interest rates from the third quarter of 2022. The RBNZ also acknowledged the recent notable improvement in the economic outlook amid gradual progress in COVID-19 vaccinations and indicated that economic uncertainty is diminishing.

The explicit cash rate forecast prompted some aggressive short-covering move around the domestic currency and pushed the NZD/USD pair above the 0.7300 mark, to the highest level since February 26. The strong move up was further supported by a subdued US dollar price action and the prevalent risk-on environment, which tends to benefit the perceived riskier kiwi.

The USD Index languished near multi-month lows amid expectations that the Fed will retain its ultra-lose monetary policy stance for a longer period. Various FOMC officials eased worries about runaway inflation and reiterated that any spike in prices is more likely to be temporary, forcing investors to scale down their bets for an earlier than anticipated Fed lift-off.

Meanwhile, a modest uptick in the US Treasury bond yields held traders from placing fresh bearish bets around the greenback. This, in turn, was seen as a key factor that kept a lid on any further gains for the NZD/USD pair, at least for the time being. That said, the lack of any meaningful pullback suggests that the path of least resistance for the pair is to the upside.

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