- NZD/USD lacked any firm directional bias and consolidated the overnight slide to weekly lows.
- The risk-on mood extended support to the perceived riskier kiwi and helped limit the downside.
- Bouncing US bond yields underpinned the USD and capped any meaningful gains for the major.
The NZD/USD pair was seen oscillating in a narrow band near weekly lows, just above the key 0.7000 psychological mark through the first half of the Asian session on Thursday.
A combination of diverging forces failed to provide any meaningful impetus and forced the pair to consolidate the previous day’s slide of around 70 pips to weekly lows. The underlying bullish tone in the financial markets extended some support to the perceived riskier kiwi. However, a modest US dollar uptick kept a lid on any meaningful gains for the NZD/USD pair.
The USD found some support from rebounding US Treasury bond yields and built on the overnight bounce from over two-week lows. The FOMC March meeting minutes released on Wednesday confirmed that the Fed will keep interest rates low until the US economy makes a more secure recovery. Investors, however, seem convinced that a stronger economic recovery would force the Fed to raise interest rates sooner than anticipated, which, in turn, pushed bond yields higher.
The optimistic outlook for a relatively faster US economic recovery from the pandemic remained well supported by the impressive pace of coronavirus vaccinations. This, along with US President Joe Biden’s infrastructure spending plan of more than $2 trillion, has been fueling speculations about an uptick in US inflation. This further raised doubts that the Fed will retain ultra-low interest rates for a longer period.
From a technical perspective, Wednesday’s decline suggested that the recent bounce from multi-month has already run out of steam and favours bearish traders. Sustained weakness below the 0.7000 mark will reaffirm the negative bias and turn the NZD/USD pair vulnerable to resume its recent sharp retracement slide from multi-year tops touched in February.
There isn’t any major market-moving economic data due for release from the US on Thursday. Hence, the US bond yields will play a key role in influencing the USD price dynamics and provide some impetus to the NZD/USD pair. The key focus, however, will remain on Fed Chair Jerome Powell’s scheduled speech later during the North American session.