NZD/USD keeps melting as US yields push higher

NZD/USD bears offer no respite as the downtrend keeps extending towards the 0.7000 handle.
Friday is the most important day of the week for the USD with the PCE and GDP data.
The surging US 10-year note yield remains the main driver behind the US dollar demand.

Flavio Tosti Independent Analyst

The NZD/USD is trading at around 0.7066 down 0.74% on Wednesday as the European forex session came to a close.

The kiwi once again is being dragged lower against the US dollar as the 10-year US Treasury yields are consolidating above the 3.000% psychological level.

The NZD/USD is in a strong bear trend and is en route to establish a second losing week. The US Dollar Index (DXY), which measures the greenback relative to a basket of currencies is at 8-weeks’ high trading above the 91.00 psychological level. The buck has been increasing in value consistently in the last seven days, only Tuesday saw a consolidation day in DXY.

The main driver behind the USD boost is the multi-year high seen in the 10-year US Treasury yield which is above the 3.00% mark. Those are levels not seen since January 2014. Driving the yields are the rising inflation and the rate hike expectations. Investors are getting away from riskier assets and prefer holding USD instead. Consequently, as interest rates increase so does the cost of borrowing money. It is seen as bearish for companies which will likely struggle in such an environment.

The already bearish NZD/USD trend can potentially accelerate down if the US inflation data on Friday if the Personal Consumption Expenditures or PCE index for the first quarter of the year surprise the market to the upside. In addition, the US Gross Domestic Product will also provide further information as to the health of the US economy. Strong data would see traders expecting more rate hikes from the Fed in the near future and possible more USD demand.

NZD/USD technical outlook:

“NZD/USD is trading at 0.7089; the instrument is moving below Ichimoku Cloud, which means that it may continue falling. The markets could indicate that the price may test Tenkan-Sen and Kijun-Sen at 0.7110 and then continue moving downwards to reach 0.7005. Another signal to confirm further descending movement is the price’s rebounding from the channel’s upside border. However, the scenario that implies further decline may be canceled if the price breaks the upside border of the cloud and fixes above 0.7170. In this case, the pair may continue growing towards 0.7240,” explains the Roboforex team.

Author

Flavio Tosti

Independent Analyst

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