- NZD/USD was seen oscillating in a range through the first half of the European session.
- The prevalent risk-on environment extended some support to the perceived riskier kiwi.
- Hawkish Fed expectations underpinned the USD and kept a lid on any meaningful gains.
The NZD/USD pair lacked any firm directional bias and seesawed between tepid gains/minor losses, just above the 0.7100 mark through the first half of the European session.
A combination of diverging forces failed to provide any meaningful impetus to the NZD/USD pair, instead led to a subdued/range-bound price action for the second successive session on Monday. The risk-on impulse – as depicted by strong gains in the equity markets – extended some support to the perceived riskier kiwi. However, the prevalent bullish sentiment surrounding the US dollar acted as a headwind for the major and kept a lid on any meaningful gains.
Despite the dismal US jobs report for August and worries over the fast-spreading Delta variant, investors seem convinced about an imminent Fed taper announcement later this year. The market speculations were further fueled by Philadelphia Fed President Patrick Harker’s comments on Monday, who joined a chorus of policymakers keen to trim $120 billion in monthly bond purchases. This, in turn, pushed the key USD Index to two-week tops on Monday.
Apart from this, the recent spike in the US Treasury bond yields was seen as another factor that continued underpinning the greenback. In fact, the yield on the benchmark 10-year US government bond shot back closer to the 1.35% threshold on Friday after US Producer Price Index (PPI) recorded the largest gain since November 2010. The data indicated that higher inflation could persist for some time and validated hawkish Fed expectations.
Hence, the focus now shifts to the latest US consumer inflation report, due for release on Tuesday. Traders this week will further take cues from important Chinese macro releases, Australian employment details and the US monthly Retail Sales figures. This will play a key role in influencing the USD price dynamics ahead of the crucial FOMC monetary policy meeting on September 20-21. In the meantime, the NZD/USD pair seems more likely to prolong its consolidative price moves amid absent relevant market-moving US economic releases on Monday.