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NZD/USD Challenges Key Resistance Level Amid Positive Economic Sentiments

29 December 2023 Written by Sandro Pontedra  Finance Industry Expert Sandro Pontedra

NZD/USD Eyes Renewed Highs as Market Sentiment Swings Toward Risk-On. The NZD/USD currency pair is on the cusp of revisiting its five-month peak, buoyed by a favorable market sentiment that leans towards a risk-on mood. This optimism is largely fueled by expectations of a dovish stance from the Federal Reserve, influenced by declining US bond yields. During European trading hours on Friday, NZD/USD hovers around the pivotal 0.6350 level, striving to surpass the five-month high of 0.6369 achieved on Thursday.

Impact of the Federal Reserve's Policy and US Treasury Yields on NZD/USD

The market's anticipation of interest rate cuts by the Federal Reserve in the first quarter of 2024 is creating a ripple effect on US Treasury yields. The US Dollar Index (DXY) is trading lower, around 101.20, reflecting the downturn in yields for both 2-year and 10-year US Treasury notes, which stand at 4.26% and 3.83%, respectively. This trend is exerting downward pressure on the US dollar, creating a favorable environment for the NZD.

RBNZ's Hawkish Stance Supported by Robust Economic Data

The Reserve Bank of New Zealand (RBNZ) is expected to retain its hawkish stance, refraining from policy easing in its forthcoming meeting. This expectation is bolstered by recent positive economic indicators, including November's improved Consumer Confidence and Business Confidence data. These factors are collectively enhancing the bullish outlook for the NZD, reflecting market confidence in the RBNZ's commitment to a firm monetary policy direction.

RBNZ Governor's Strategy and Global Risk Appetite

RBNZ Governor Adrian Orr's strategic approach, particularly in addressing high inflation, underscores the complexities of the current economic scenario. ANZ analysts project a global resurgence in risk appetite, alongside the attractive interest rate differential of the NZD, as key drivers of the currency's upward trajectory through 2024.

In the upcoming week, with no major data releases scheduled for New Zealand, traders are turning their attention to China's Caixin Manufacturing PMI for December, set to be released on Tuesday. Given New Zealand's close trade ties with China, this data holds significant importance. Additionally, the United States' economic calendar features the release of the Chicago Purchasing Managers' Index (PMI) for December on Friday, which is likely to influence market sentiments and consequently impact the NZD/USD pair.

Conclusion: Navigating Market Dynamics with a Watchful Eye

As the NZD/USD pair navigates through critical levels, market participants remain vigilant, closely monitoring global economic indicators and central bank policies. The interplay of these factors will be crucial in determining the pair's trajectory, making it imperative for investors and traders to stay informed and adapt to the evolving market landscape.

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