- Rising US Treasury yields are helping the US dollar stay afloat amid a costly debt ceiling crisis.
- NZD is expected to gain from an impending rise in interest rates in New Zealand.
- Forthcoming NFP data release will have a significant impact on the greenback.
The New Zealand dollar was marginally down in early hours of trading on Tuesday, losing 0.03% of its value to trade at 0.6959 at 0838 GMT. Nonetheless, the market fundamentals at the time weren’t too harsh on the kiwi as to prevent a fourth successive gain against the US dollar.
At the time of writing, the Dollar Index, weighing the US dollar’s strength against six other major currencies, was marginally down at 93.80, after having gone as high as 94.01 a few hours earlier.
Treasury yields, debt ceiling, and NFP data to define the dollar
Increasing US Treasury yields boosted the dollar’s early-day European trade gains on Tuesday. There’s still a chance we’ll see some choppiness in the financial markets until Friday’s announcement of US Nonfarm Payrolls provides some clarification on the Federal Reserve tapering.
In light of rising bond yields, investors have been concerned about Congress’ inability to agree on raising America’s debt ceiling, which has brought in mixed fortunes for the greenback.
As a result of President Joe Biden’s remarks yesterday that he cannot promise the government would not go over its $28.4 trillion debt limit, the yield on the benchmark 10-year US Treasury note increased to 1.49 percent.
Imminent rates hike to help strengthen NZD
Interest rates will almost definitely be raised by the Reserve Bank of New Zealand on Wednesday by 0.25 percent to 0.50 percent, but the statement will be more important. Investors will be keen to listen for clues as to whether the hike will have hawkish or dovish undertones.
A tight labor market and rising prices are pushing the RBNZ to raise interest rates for the first time in the pandemic period as the nation recovers from the damaging effects of the local Delta COVID variant outbreak.
Inflation in New Zealand increased by 3.3% in the second quarter, above the RBNZ’s goal range of 1-3% and indicating that policy tightening may be warranted soon.
Risk sentiment could hurt the kiwi
Despite renewed hope that the interest rates hike could bolster the New Zealand dollar, the rising fear sentiment in Asia could reverse the gains.
Elsewhere, investors’ enthusiasm for riskier assets was muted by concerns that an out-of-control rise in crude oil/energy prices would fuel inflation and hamper the global economic recovery. A huge blow for the risk-averse kiwi, this could also undo any of the advantages that the interest rate hike may have brought about for the currency.
NZDUSD has been on an uptrend for the past three days and has formed an expanding triangle as a result. The two major support levels have been established near the base of the triangle, while the resistance level is near the tip, as shown on the chart below.
The MACD line is currently below the signal line, which communicates bearishness in the market. If the bears keep control of the market, the NZDUSD pair could head down to find the first support at 0.6894 and the second support at 0.6816. If the bulls take control, they are likely to push the pair up to encounter resistance at 0.7010.