NZD/USD is trading up from the recent cycle lows, but bears are lurking

NZD/USD has been correcting to the upside in the latter part of the New York session and is now meeting a resistance area that was carved out during US dollar strength. The price is currently trading at 0.6730 and towards the bottom of the recent weekly bearish run. 

A solid rise in US bond yields underpinned the US dollar and send the kiwi lower at the start of the week. ''The USD usually does well into rate hikes but starts to fade early on, but this time it’s maintaining its strength thanks to peculiarities including global geopolitics,'' analysts at ANZ Bank said.

All eyes on the Fed

With a focus on the Federal Reserve, Fed member James Bullard spoke on Monday and offered further insight on the outlook for Fed policy. Bullard is one of the bank's most hawkish and has called for interest rates to reach 3.0% this year.

US inflation is "far too high," he said on Monday, repeating his case for increasing interest rates to 3.5% by the end of the year to rein in inflation expectations and slow what are now 40-year-high inflation readings.

"What we need to do right now is get expeditiously to neutral and then go from there," Bullard said at a virtual event held by the Council on Foreign Relations, adding that he doesn't expect to need to raise rates by more than half a percentage point at any meeting.

He said that the Unemployment Rate can continue to fall even with aggressive rate hikes, repeating his view that unemployment, now at 3.6%, will go below 3% this year.

Looking forward, a speech from Fed Chair Jerome Powell later this week, where he is expected to solidify expectations for a 50 bps rate hike at the coming Fed policy meeting.

Meanwhile, ''technically, the NZD is now at a key level (0.6723 being the 61.8% Fibo of the January-April rally). A sustained break below could see a deeper trough, but equally, if it holds, that’d likely form a short term base. Complicated,'' the analysts at ANZ Bank said.