The NZD/USD pair continues its impressive upward momentum for the second consecutive day on Thursday, reaching a peak above the 0.6350-0.6355 range during the early European session.
The US Dollar (USD) maintains its downward trajectory, hitting its lowest level since April 2022 as market sentiment grows increasingly confident that the Federal Reserve (Fed) is nearing the end of its tightening cycle.
Investors now widely believe that the US central bank will keep interest rates unchanged for the remainder of the year, following the anticipated 25 bps increase in July. The recent softer US consumer inflation figures released on Wednesday reinforce this view.
As a result, US Treasury bond yields continue to decline, further pressuring the dollar and providing significant impetus for the NZD/USD pair.
In addition, the prevailing risk-on environment, evident in the extended rally in global equity markets, further weakens the safe-haven status of the US Dollar and benefits the risk-sensitive New Zealand Dollar (Kiwi).
This sentiment overshadows weaker domestic data, including a contraction in New Zealand’s manufacturing sector in June to its lowest level since November 2022. Even the Reserve Bank of New Zealand’s decision to leave the official cash rate unchanged and disappointing Chinese trade balance data have had limited impact on the positive movement of the NZD/USD pair.
It’s important to note that China’s dollar-denominated trade surplus expanded less than anticipated, reaching $70.62 billion in June compared to the previous $65.81 billion. The report revealed a 12.4% decline in exports, the sharpest drop since the height of the COVID-19 pandemic in March 2020, indicating challenges with overseas demand.
Additionally, imports decreased by 6.8%, fueling concerns about a slowdown in the world’s second-largest economy. However, these factors fail to dampen the bullish sentiment surrounding the NZD/USD pair.
Market participants eagerly await the release of the Producer Price Index (PPI) and the usual Weekly Initial Jobless Claims data from the US economic docket during the early North American session.
These, along with US bond yields and overall risk sentiment, may impact USD demand and provide further momentum for the NZD/USD pair. Nevertheless, considering the underlying fundamentals and price action, it appears that the path of least resistance for spot prices remains to the upside.
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