The NZD/USD pair gained traction on Thursday, snapping a four-day losing skid.
Against a backdrop of sluggish USD demand, the perceived riskier kiwi benefited from the existing risk-on mentality.
Expectations for a hawkish Fed and rising US bond yields should support the dollar and limit gains.
The NZD/USD pair remained bought throughout the early European session, lingering near daily highs, with bulls hoping to extend the rally above the crucial 0.7000 psychological level.
On Thursday, the pair stopped its recent steep fall from around the 0.7100 area and found some positive traction, halting a four-day losing run. The perceived riskier kiwi benefited from the underlying bullish sentiment in the financial markets. Aside from that, the NZD/USD pair received some support from a weakening US dollar demand.
Despite the positive aspects, the increase lacked bullish confidence and appears to be on the verge of fizzling out. Markets have speculated that if price pressures continue to rise, the Fed will tighten its monetary policy. This should continue to operate as a tailwind for the dollar, limiting any significant gain for the NZD/USD pair.
Wednesday’s higher ADP report and aggressive comments from Dallas Fed President Robert Kaplan bolstered market expectations. The Automatic Data Processing (ADP) Research Institute released monthly data on Wednesday showing that US private-sector businesses gained 692K positions in June, compared to market expectations of 600K.
Meanwhile, in an interview with Bloomberg TV, Dallas Fed President Robert Kaplan stated that they are witnessing a broadening of price pressures and would want to taper sooner than the end of the year. A substantial uptick in US Treasury bond yields, on the other hand, strengthens prospects for more near-term USD gains and, for the time being, caps gains for the NZD/USD pair.
The release of the US ISM Manufacturing PMI is presently anticipated by market participants. The USD price dynamics may be influenced by this, as well as US bond yields. Traders may also use broader market risk sentiment to seize some short-term chances in the NZD/USD pair, while the focus will remain on Friday’s US employment report (NFP)./n
