- NZD/USD continued losing ground on Wednesday and dropped to fresh multi-month lows.
- The NZ government’s overnight announcement to curb housing prices weighed on the kiwi.
- The risk-off mood benefitted the safe-haven USD and contributed to the ongoing downfall.
The NZD/USD pair remained depressed through the Asian session on Wednesday and dropped to fresh four-month lows, around the 0.6975 region in the last hour.
The pair added to the previous day’s heavy losses and lost some additional ground during the early part of the trading action on Wednesday. The New Zealand government on Tuesday announced a series of measures to cool the housing market. The move eased pressure on the Reserve Bank of New Zealand (RBNZ) to raise rates has diminished, which was seen as a key factor that continued weighing on the New Zealand dollar.
Apart from this, the prevalent risk-off mood benefitted the safe-haven US dollar and further drove flows away from the perceived riskier kiwi. Investors turned caution on the back of a spike in COVID-19 infections and a string of renewed lockdown measures in Europe. This, along with Western sanctions on Chinese officials over the human rights violations and abuses in Xinjiang, took its toll on the global risk sentiment.
The USD was further underpinned by the prospects for a relatively faster US economic recovery from the pandemic and seemed unaffected by the ongoing slide in the US Treasury bond yields. The Fed Chair Jerome Powell on Tuesday downplayed the risks that economic growth would spur unwanted inflation. This, in turn, dragged the yield on the benchmark 10-year US government bond further away from over one-year tops touched last week.
From a technical perspective, the downfall could further be attributed to some technical selling following the overnight close below the key 0.7000 psychological mark. This might have already set the stage for further weakness, though extremely oversold conditions on hourly charts warrant some consolidation or a modest bounce. That said, any attempted recovery might still be seen as a selling opportunity and remain limited.