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  • NZD/USD has reconquered 0.7000 for the third consecutive day, and is trading near the top of this week’s range.
  • USD weakness due to a drop in US government bond yields is the main reason for NZD/USD strength on Thursday.

NZD/USD has managed to reconquer the 0.7000 level for the third consecutive day this Thursday and has now managed to move back to the top of this week’s 0.6940s-0.7030ish range. A clean break above 0.7000 and above this week’s range could signal that a move back towards the 0.7100 level is back on the cards – this is a key area of resistance, as it (roughly) coincides with the 5 March low and the 21-day moving average. Alternatively, failure could signal that a move back towards the bottom of this week’s range under 0.6950 is likely.

At present, the pair is trading with gains of about 0.5% or 35 pips on the session. New Zealand, European and North American markets are closed on Friday for the Good Friday public holiday – FX market volumes are likely to thus be very light during the Asia Pacific session, even if China, Japan and South Korea-based market participants are still in the market.

Driving the day

US government bond yields have been dropping throughout the session on Thursday. 10-year yields are currently down close to 7bps to just under 1.68%, while 30-year yields have tanked more than 8bps to under 2.35%. Real yields are also lower, with the 10-year TIPS just over 4bps lower on the session to under -0.67%. No specific fundamental catalyst or piece of news can be pointed at as explaining the move. Rather, it seems that after a torrid Q1 during which time US government bonds were hammered, market participants are taking the opportunity at the start of the new quarter to adjust their positioning a little – on Thursday, this appears to have come in the form of position squaring/profit-taking on shorts.

Whatever the reason for the drop in US government bond yields, it is helping risk appetite (stocks and most commodities are higher) and hurting the US dollar, as US/G10 rate differentials are eroded. This is the main reason as to why NZD/USD has been able to make up ground on the day and seems to have little to do with domestic kiwi-related factors.

Looking ahead to next week, New Zealand markets will be closed again on Monday for the Easter Monday public holiday (as will European markets, though US markets will be open again). The main data out of New Zealand next week will be the April ANZ Business Confidence and Activity Outlook surveys, out on Thursday. Meanwhile, in the US, FX market participants will be on alert for the March ISM Services PMI survey, out on Tuesday ahead of the FOMC minutes of the March policy meeting on Wednesday.