- A combination of supporting factors pushed NZD/USD higher for the second straight day.
- The risk-on impulse undermined the safe-haven USD and benefitted the risk-sensitive kiwi.
- Hawkish Fed expectations, rising US bond yields to limit the USD losses and cap the major.
The NZD/USD pair attracted some buyers for the second straight day on Tuesday and climbed back to the 0.6365-0.6370 hurdle during the early part of the European session.
The US dollar came under renewed selling pressure amid signs that there will not be any consensus for more aggressive Fed rate hikes in the foreseeable future. Fed Governor Christopher Waller - a known hawk - said on Sunday that he was open to another rate hike of 75 bps in July, though ruled out the extreme scenario of a 100 bps hike. Apart from this, a generally positive tone around the equity markets further undermined the greenback's safe-haven demand and benefitted the risk-sensitive kiwi.
The markets, however, seem convinced that the Fed would stick to its policy tightening path to combat stubbornly high inflation, which surged to over a four-decade high in May. The bets were reaffirmed by the Fed's so-called dot plot, showing that the median projection for the federal funds rate stood at 3.4% for 2022 and 3.8% in 2023. This, in turn, pushed the US Treasury bond yields higher, which, along with recession fears, acted as a tailwind for the USD and capped the upside for the NZD/USD pair.
Investors remain concerned that a more aggressive move by major central banks to tackle inflation would pose challenges to the global economic recovery. This might keep a lid on any optimistic move in the markets, which, in turn, supports prospects for the emergence of USD dip-buying and warrants caution before placing bullish bets around the NZD/USD pair. Traders now look forward to the release of the Existing Home Sales data from the US for some impetus later during the early North American session.
