NZ dollar soars, breaks 70 line

New Zealand dollar pummels greenback

The New Zealand dollar has surged higher on Thursday and is currently trading at 0.7030, up 1.00% on the day. The currency has extended the previous day’s gains of 0.51%, as the US dollar finds itself in retreat mode.

The US dollar index fell as low as 0.9376 today but has recovered slightly in Europe. Currently, the index is at 0.9393, down 0.16% on the day. A strong US 30-year bond auction overnight sent Treasury yields and the dollar index lower. If the index has a daily close below 93.50, that could change the bullish sentiment towards the US dollar. Conversely, if the index can break above resistance at 94.50, it has room to move higher.

US inflation for September was robust but remained within expectations. Headline CPI (YoY) came in at 5.4% and Core CPI was unchanged at 4.0%. These are certainly high levels, but investors reacted calmly, which allowed equities and risk currencies like the New Zealand dollar to rally.

In the US, the FOMC minutes signalled a Fed tapering in November or December. The minutes indicated that the Fed would scale back its bond purchases of USD 120 billion/month gradually, until the programme was completely wound up in July. The markets have brought forward the pricing of a rate hike from December 2022 to September 2022, an indication that the markets are becoming increasingly sceptical about the Fed’s stance that inflation is transitory. If inflation shows no signs of waning, we can expect the market to continue to move forward rate hike expectations, a move that would be supportive of the US dollar.

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NZD/USD Technical

• NZD/USD easily broke above monthly tops at 0.6975. The pair is testing resistance at 0.7034, followed by resistance at 0.7087
• There are support lines at 0.6877 and 0.6824

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