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  • NZD/USD staged a modest bounce from sub-0.7200 levels, albeit lacked any follow-through.
  • A combination of factors benefitted the USD and capped the attempted intraday recovery.
  • Dovish comments by Fed’s Clarida were offset by surging US bond yields, stronger US CPI.
  • The prevalent risk-off mood exerted some additional pressure on the perceived riskier kiwi.

The NZD/USD pair stalled its early North American session bounce near the 0.7245 region and dropped back closer to daily lows, albeit has still managed to hold above the 0.7200 mark.

The pair witnessed some heavy selling and momentarily slipped below the 0.7200 mark, or four-day lows in reaction to hotter-than-expected US consumer inflation figures. In fact, the headline CPI posted the largest rise since September 2008 and accelerated to 4.2% YoY in April. Apart from this, the core CPI also surpassed expectations and jumped 3.0% YoY from 1.6% recorded in the previous month.

The data added to the market worries that the rapid rise in inflation may be something more than transitory and could push the Fed to tighten its policy earlier than expected. This, in turn, provided a strong lift to the US dollar and exerted some heavy pressure on the NZD/USD pair. The USD, however, lost some traction after Fed Governor Richard Clarida reiterated that inflation above 2% is due to transitory factors and highlighted uncertainty about the near-term labour market outlook.

That said, a sharp spike in the US Treasury bond yields acted as a tailwind for the greenback. This, along with the prevalent risk-off mood, further underpinned the USD’s relative safe-haven status. The anti-risk flow was evident from an extended selloff in the global equity markets, which was seen as another factor that weighed on the perceived riskier kiwi. However, the lack of any strong follow-through selling warrants some caution before positioning for any further depreciating move.

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