- US dollar strengthens as 10-year yield rises to one-year highs.
- USDJPY edges higher as Bank of Japan leaves monetary policy unchanged.
- NZDUSD sell-off gathers steam after a break below 0.6800.
US dollar bounce-back from two-month lows against the major’s, gathered steam Tuesday morning. The dollar index, which tracks the greenback strength, powered the 95.30 level after plunging to lows of 94.58 last week.
The greenback strengthening against the majors comes at the back of US treasury yields edging higher amid growing bets that the Federal Reserve will hike interest rate in March. The 10-year yield has already rallied to one-year highs of 1.84%.
The dollar is yet to gain on the front foot against the majors as investors continue to add net long positions on hawkish rhetoric from Fed officials in recent weeks.
USDJPY technical analysis
Meanwhile, the USDJPY touched two-week highs of 115.04 briefly before easing slightly. The rally came at the backdrop of the Bank of Japan keeping its monetary policy steady and revising its inflation forecasts upwards.
As it stands, the bullish momentum on the pair is building up as the yen remains under pressure amid a resurgent US dollar. A pullback to session lows of 114.75 appears to be a minor correction on traders taking profits after the spike to highs of 115.04.
A rally followed by close above the 115.04 level should allow bulls to steer a rally to the 115.70, the next substantial resistance level. On the flip side, bulls failing to steer a rally and a close above the 115.00 level could trigger renewed sell-off on USDJPY back to lows of 114.45, a critical support level.
BOJ unchanged monetary policy
The USDJPY continues to catch a fresh wave of buying pressure on the BOJ, unchanged interest rates. The central bank stuck with the 10-year yield target of 0.00% and left the balance rate at -0.10%.
The BOJ also trimmed the 2021 median GDP forecast at 2.8% from 3.4%. However, it expects the median GDP to land at 3.8% from the previous guidance of 2.9%. The central bank expects the 2021 core Consumer price Index median to remain unchanged at 0.00% but expects the 2022 core CPI median to come in at 1.1%.
The central bank reiterated that it expects a positive economic cycle to strengthen as rising income pushes expenditure did little to fuel yen strength against the dollar. Consequently, the USDJPY looks set to continue edging higher as the dollar continues to attract bids amid rising US treasury yields.
NZDUSD building selling pressure
The NZDUSD, on the other hand, is on course for a third consecutive day of losses as the New Zealand dollar continues to lose ground against the greenback. The pair has since pulled back from one and half month highs to one-week lows of 0.6766.
Failure to find support above 0.6800 has left NZDUSD susceptible to further losses to the 0.6720, the next support level. A breakthrough in the support level could trigger renewed sell-off back to lows of 0.6690.
The latest weakness on the NZDUSD pair stems from the Peoples Bank of China raising concerns about the health of the second-largest economy in the world by cutting borrowing costs of its medium-term loans for the first time since April 2020.
The cut comes on the country’s economy slowing down amid the persistent effects of the pandemic. The NZD tends to weaken on negative news out of China, given that it is New Zealand’s biggest trading partner.
The sell-off on the NZDUSD is also due to a big bounce back in dollar strength from two-month lows. With bets of expected rate hikes in the US, the pair look set to continue edging lower on growing dollar strength.