NZD/USD jumps to 3-day high, 5-week rally contradicts stagnant NZ-US bond yield spread

NZD/USD clocked to a three-day high of 0.7283 in Asia, extending Friday’s rally from the low of 0.7194. The American dollar was offered on Friday in the North American session following the release of a disappointing housing data and Michigan confidence number.

Kiwi is up 6.8%

The NZD/USD gained 6.8% over the last 5 weeks. The spot bottomed out at 0.6817 on May 11 and rose to a high of 0.7319 last Wednesday. Broad based USD selling on expectations that the Fed will scale back its interest rate projections helped NZD/USD score impressive gains. However, the Fed delivered a hawkish rate hike, thus stopping the rally at a high of 0.7319. 

Interestingly, the NZ-US 10- year bond yield spread has remained largely stagnant around 66 basis points during the 5-week period. The 2-year yield spread narrowed from 76 basis points (on May 11) to 0.66 basis points (as of today). 

The focus this week is on the RBNZ rate decision and GDT auction. The central bank is widely expected to repeat the language of the May statement - “monetary policy will remain accommodative for a considerable period”.

NZD/USD Technical Levels

The daily MACD shows loss of bullish momentum. A bearish MACD divergence could be on the cards, although Friday’s bullish inside day candle and a strong follow through today is encouraging for the bulls. 

A break above 0.7319 (last week’s high) would open up upside towards 0.7376 (Feb 4 high) and 0.7445 (weekly 200-MA). On the downside, breach of immediate support of 0.7247 (session low) could yield a sell-off to 0.7223 (10-DMA) and 0.7190 (weekly 5-MA). 

  TREND INDEX OB/OS INDEX VOLATILY INDEX
15M Slightly Bullish Overbought High
1H Bullish Overbought Low
4H Bullish Neutral Low
1D Slightly Bullish Neutral Low
1W Bullish Neutral Low

 

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