NZD/USD bounces off lows, finds some support near 0.7000 mark
- A broad-based USD strength prompted aggressive selling around NZD/USD on Friday.
- A strong pickup in the US bond yields was seen as a key factor that boosted the buck.
- Sustained weakness back below the 0.7000 mark will set the stage for further losses.
The NZD/USD pair refreshed daily lows during the early European session, albeit managed to find some support near the key 0.7000 psychological mark. The pair was last seen trading around the 0.7020-25 region, still down 0.60% for the day.
The pair continued with its struggle to make it through the 0.7065-70 resistance zone and came under some renewed selling pressure on the last day of the week. As investors digested a stubbornly dovish Fed, the US dollar staged a solid rebound from over two-week lows amid a strong pickup in the US Treasury bond yields. This, in turn, was seen as a key factor that exerted downward pressure on the NZD/USD pair.
The Fed Chair Jerome Powell said on Thursday that the dovish policy stance wouldn't shift until there were at least a few consecutive months of positive data. Separately, St. Louis Fed President James Bullard said that the central bank should not even discuss changes until there are clear signs that the pandemic is over. This forced investors to reassess their expectations about an earlier than anticipated Fed rate hike.
That said, the markets remain convinced that a relatively faster US economic recovery from the pandemic could force the Fed to raise interest rates sooner rather than later. The optimistic US economic outlook has was supported by the impressive pace of coronavirus vaccinations and US President Joe Biden's spending plan.
The reflation trade has been fueling speculations about an uptick in US inflation and raised doubts that the Fed will retain ultra-low interest rates for a longer period. That said, the underlying bullish sentiment in the financial markets kept a lid on any further gains for the safe-haven USD, at least for the time being.
Nevertheless, the NZD/USD pair has now erased a major part of the overnight gains and sustained weakness below the 0.7000 mark will set the stage for additional losses. Bears might then aim to challenge multi-month lows support near the 0.6945 region before dragging the pair further towards the very important 200-day SMA.
Technical levels to watch