• Sliding US bond yields prompts some short-covering move.
• Recoveries are more likely to be short-lived.
• This week’s key event/data to help determine the next leg.
The NZD/USD pair staged a goodish recovery from sub-0.6800 level and recovered nearly 50-pips from session tops.
Currently trading around 0.6830-35 band, with a daily gain of over 0.30%, the NZD is turning out to the top performing major currency and one of the key beneficiaries of sliding US Treasury bond yields.
Against the backdrop of last week's sell-off to the lowest level since early June 2016, weaker US bond yields, which tends to boost demand for higher-yielding currencies, seems to have prompted some short-covering and has been one of the key factors driving the pair higher.
Apart from a modest recovery, led by technically oversold conditions, the pair's up-move lacked any fundamental drivers and hence, runs the risk of reversing its course amid concerns over the change in government and its possible impact on RBNZ monetary policy.
Moving ahead, this week's key events/data - FOMC meeting minutes and the key US durable goods orders data would help determine the pair's next leg of directional move.
Technical levels to watch
A strong follow-through recovery could lift the pair towards 0.6870 horizontal support before attempting a move towards the 0.6900 handle. On the flip side, renewed weakness below the 0.6800 handle, leading to a subsequent break below 0.6780 level (Friday's low), would turn the pair vulnerable to extend its downward trajectory towards the 0.6700 handle.
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