- NZD/USD gained strong positive traction for the third successive session on Monday.
- A broad-based USD weakness remained supportive of the ongoing positive momentum.
- A combination of factors might help limit the USD losses and cap gains for the major.
The intraday USD selling picked up pace during the mid-European session and pushed the NZD/USD pair to four-day tops, around the 0.6975 region in the last hour.
The pair built on last week's rebound from the 0.6860 region, or the lowest level since August 23 and gained follow-through traction for the third successive session on Monday. The ongoing US dollar retracement slide from over one-year tops turned out to be a key factor that provided a goodish lift to the NZD/USD pair.
That said, a combination of factors should help limit deeper losses for the greenback and keep a lid on any meaningful upside for the NZD/USD pair. Expectations for an early policy tightening by the Fed, along with a fresh leg up in the US Treasury bond yields should continue to act as a tailwind for the greenback.
Investors seem convinced that the Fed would begin rolling back its massive pandemic-era stimulus as soon as November. The markets also seem to have started pricing in the prospect for a Fed interest rate hike in 2022. Apart from this, the risk-off impulse could further lend some support to the safe-haven USD.
Worries that Evergrande Group's debt crisis could spread to China's entire property sector tempered investors' appetite for perceived riskier assets. This was evident from a generally weaker tone around the equity markets. This, in turn, might hold traders from placing aggressive bullish bets around the perceived riskier kiwi.
Hence, it remains to be seen if bulls are able to capitalize on the move of the NZD/USD pair meets with some fresh supply at higher levels. There isn't any major market-moving economic data due for release from the US on Monday, further making it prudent to wait for a strong follow-through buying before positioning for any further gains.
Technical levels to watch
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