- NZD/USD bulls are attempting to correct the US dollar’s advance.
- However, there are prospects for a longer bullish rin in the greenback.
NZD/USD is trading at 0.7006 and flat n the day as traders wind down for the weekend following a turbulent and busy past few sessions surrounding both domestic and non-domestic key events.
The main event came in the US Federal Reserve’s surprise hawkish hold.
Fed’s chair, Jerome Powell described the Federal Open Market Committee meeting as the ‘talking about talking about’ meeting.
Critically for markets, the Fed members are likely to now be seeking a plan to reduce the pace of QE which has driven a bid into the US dollar.
Additionally, members of the board are also bringing forward their projections from flat to +50bp in rate hikes by end-2023.
The DXY has powered ahead is trading at the highest since April 13, taking on the 92 level with a high after easily breaking above the 200-day moving average near 91.538.
Bulls now have sights on a test of the March 31 high near 93.437.
This has sunk the kiwi despite strong New Zealand first quarter Gross Domestic Product.
”Inflation expectations have also eased back in reaction to the Fed’s updated guidance, which is an additional positive for the greenback” analysts at ANZ Bank argued.
This is evident in today’s bond markets.
Yield curves flattened led by a strong rally in US medium and longer-dated securities as US inflation expectations fell back sharply.
The US 10-year yield fell sharply from 1.5940% to a low of 1.4690%, ending the day down -4.00%.
The yield on the US 30-year bond also fell to its lowest level since late February.
All of this is a sign that the market is clearly of the conviction that the rise in inflation is transitory.
”The USD’s rise may run further near term and it is likely that scheduled Fed speakers over the coming week will echo a more hawkish tone,” analysts at ANZ bank said.
”In the short term, rallies in NZD/USD are selling opportunities.”