- US dollar on the defensive after Powell Remarks
- NZDUSD trying to breakout on dollar weakness
- USDJPY edges lower on retreating yields
The US dollar was licking its wounds Wednesday morning after sliding to one and a half month lows against the majors. After starting the week at highs of 96.20, the dollar index, which measures the greenback strength, has slid to lows of 95.50 and remains under pressure against the majors.
The dollar plunging to its lowest level since November comes on the backdrop of the Federal Reserve Chairman Jerome Powell turning out dovish at a Senate Banking Committee hearing. The Chairman reiterated it could take months to decide on running down the central bank’s $9 trillion balance sheet. In contrast, Atlanta FED president Raphael Bostic insists the high inflation and strong recovery warrant a rundown of the FED balance sheet.
NZDUSD Technical analysis
Amid the dollar weakness across the board, NZDUSD threatens to break out after being in consolidation mode for the better part of the week. The pair has already broken out of the 0.6770 resistance level, with bulls eyeing the 0.6800 level.
A rally followed by a close above the 0.6800 psychological level should pave the way for bulls to steer a rally to highs of 0.6840 marks, the next substantial resistance level. On the flip side, a pullback followed by a close below the 0.6780 support level could trigger renewed sell-off that could see NZDUSD plunging back to lows of 0.6732.
While other majors have posted solid gains against the dollar, the New Zealand dollar has struggled to post solid gains. The struggling system from downbeat economic data out of China is the country’s biggest trading partner.
For instance, China’s headline Consumer Price Index eased below 1.8% forecast and 2.3% prior to lows of 1.5%. In addition, factory-gate inflation Produce Price Index fell to 10.3% below 11.1% expected and 12.9% prior. Disappointing economic data out of China tend to spook traders’ sentiments on the New Zealand dollar. The result has been NZDUSD struggling to post solid moves on the upside.
However, the Kiwi pair continues to experience notable buying pressure due to dollar weakness following Powell’s dovish remarks in the Senate. Concerns over supply-demand mismatch and balance sheet runoff continue to pile pressure on the greenback, all but favoring NZDUSD upside action.
While the FED chair did show readiness to hike interest rates to avert a further spike in inflation, traders have increasingly turned to riskier currencies shunning the dollar. Looking head focus will be on the US CPI data expected to provide insights into how the US economy is likely to influence dollar sentiments and NZDUSD price action.
USDJPY Bellow 116.00
Meanwhile, the USDJPY remains on the defensive after the recent sell-off to one-week lows on dollar weakness. After bouncing off the key 115.02 support level, the pair has retaken the 115.30 handle but remains bearish amid the dollar softness across the board.
Bulls need to steer a rally past the 115.66 level to have any chance of taking USDJPY back to the 116.00 level. On the flip side, a sell-off followed by a close below the 115.02 mark could leave the pair susceptible to further losses, potentially back to the 114.30 level.
The pullback from the 116.00 handle comes at the backdrop of US treasury yields coming under pressure. The 10-year yield struggling to add on to gains above the 1.73% level has left the dollar under pressure, thus the pull back on USDJPY.
In addition, the downside action has been challenged by the positive tone in the equity markets, which has undermined demand for the safe-haven Japanese yen. The FED hinting of earlier than expected rate hikes is another factor that could avert a further push lower on the USDJPY.