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NZD/USD struggles near the lowest level since November 2020


25 January 2022

NZD/USD edged lower for the fourth straight day and was pressured by a combination of factors. The dominant risk-off theme in the markets continued weighing on the perceived riskier kiwi. Rebounding US bond yields, Fed rate hike bets underpinned the USD and added to the selling bias. The NZD/USD pair remained depressed through the early European session and was last seen trading near the 0.6675 region, just a few pips above the lowest level since November 2020 touched on Monday.

The pair struggled to capitalize on the overnight late recovery of around 40 pips from the 0.6660 area and met with a fresh supply on Tuesday amid the dominant risk-off theme in the markets. Rising geopolitical risk over Ukraine, along with concerns that rising borrowing costs could dent the earnings outlook for companies continued weighing on investors' sentiment. This was seen as a key factor that acted as a headwind for the perceived riskier kiwi.

The flight to safety, along with rebounding US Treasury bond yields and expectations for a faster policy tightening by the Fed, continued underpinning the safe-haven US dollar. This was seen as another factor that exerted some pressure on the NZD/USD pair for the fourth successive day. That said, any further downside seems limited as investors might refrain from placing aggressive bets and prefer to wait for the outcome of a two-day FOMC policy meeting.

The markets seem convinced that the US central bank would begin raising interest rates in March and have been pricing in a total of four hikes in 2022. Hence, market players will look for fresh clues about the likely timing of when the Fed will actually start the policy tightening cycle. This, in turn, will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the NZD/USD pair.

In the meantime, traders on Tuesday will take cues from the release of the Conference Board's US Consumer Confidence Index, due later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, will drive the USD demand and produce some meaningful trading opportunities around the NZD/USD pair.

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