- A combination of supporting factors assisted NZD/USD to gain positive traction on Thursday.
- Retreating US bond yields kept the USD bulls on the defensive and extended some support.
- Kiwi got an additional boost from the NZ government’s plans to allow quarantine free travel.
- The lack of follow-through buying warrants caution for bulls amid hawkish Fed expectations.
The NZD/USD pair held on to its modest intraday gains through the early European session and was seen hovering near the top end of its daily trading range, around the 0.7170-75 region.
The pair managed to regain positive traction on Thursday and recovered a part of the previous day's US CPI-inspired slump of over 120 pips to one-week lows. The uptick marked the first day of a positive move in the previous three and was supported by a combination of factors.
A modest pullback in the US Treasury bond yields held the US dollar bulls from placing aggressive bets. The NZD/USD pair got an additional boost after New Zealand Prime Minister Jacinda Ardern said she is exploring quarantine-free travel with other countries.
Despite the supporting factor, the NZD/USD pair lacked any strong follow-through buying interest. A surge in the US consumer prices fueled speculations the Fed will raise rates to suppress inflation, which acted as a tailwind for the USD and capped gains for the major.
It is worth reporting that the headline CPI recorded the fastest rise since September 2008 and accelerated to a 4.2% YoY rate in Aril, significantly above the Fed's 2% target. Adding to this, core CPI (excluding food and energy) increased 3.0% YoY during the reported month.
Apart from this, the prevalent risk-off environment – as depicted by an intraday decline in the US equity futures – further benefitted the safe-haven USD. This might also contribute to capping any meaningful upside for perceived riskier currencies, including the kiwi.
Market participants now look forward to the release of the usual Initial Weekly Jobless Claims and Producer Price Index (PPI) from the US. This, along with the US bond yields and the broader market risk sentiment, will influence the USD and provide some impetus to the NZD/USD pair.