The NZD/USD pair continued losing ground through the early European session and dropped to over a two-week low, below mid-0.6700s.
The pair extended the previous day’s retracement slide from the 0.6835-40 region and witnessed heavy selling during the first half of the trading on Thursday. The US dollar was back in demand following the release of surprisingly hawkish FOMC meeting minutes on Wednesday. Apart from this, the risk-off impulse further benefitted the safe-haven greenback and drove flows away from the perceived riskier kiwi.
The December 14-15 FOMC monetary policy meeting minutes pointed to a faster-than-expected rise in interest rates. Moreover, some Fed officials also thought that it would be appropriate to initiate balance sheet runoff at some point after the first increase. This underscored a big shift in the policymakers’ tone, which, in turn, was seen as a key factor that continued acting as a tailwind for the USD.
Meanwhile, the market was quick to price in a roughly 80% chance of a 25 bps Fed hike by March 2022. This was evident from an extended selloff in the US bond markets, pushing yields on the long-end US government bonds – 10 and 30-years – to their highest level since October. Apart from this, worries about the rapid spread of the Omicron variant took triggered a fresh wave of the global risk-aversion trade.
The combination of factors exerted heavy pressure on the NZD/USD pair, taking along some short-term trading stops placed near the 0.6800 round figure. Hence, a subsequent slide towards challenging 2021 low, around the 0.6700 mark touched on December 15, now looks a distinct possibility. The negative outlook is reinforced by bearish technical indicators, which are still far from being in the oversold territory.
Market players now look forward to the US economic docket, highlighting the releases of the usual Weekly Initial Jobless Claims and ISM Services PMI. This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and provide a fresh impetus to the NZD/USD pair. The key focus, however, will remain on Friday’s release of the US monthly jobs report (NFP).
NZD/USD Short (Sell)
Enter at: 0.67330