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  • NZD/USD witnessed some heavy selling on Friday and snapped four days of the winning streak.
  • Surging US bond yields helped revive the USD demand and prompted long-unwinding trade.
  • The risk-on mood might help limit losses ahead of Friday’s release of the key US inflation data.

The NZD/USD pair continued losing ground heading into the European session and dropped to fresh daily lows, around the 0.7240 region in the last hour.

Having struggled to find acceptance above the 0.7300 mark, the pair witnessed some heavy selling on the last day of the week and snapped four consecutive days of the winning streak. The sharp fall was exclusively sponsored by a modest pickup in the US dollar demand, which found some support from the overnight upsurge in the US Treasury bond yields.

Long-dated US Treasuries sold off on Thursday in reaction to mostly upbeat US economic data and reports that US President Joe Biden will announce a $6 trillion budget for the fiscal year 2022. This further stoked worries about rising inflationary pressure, which might force the Fed to act faster and tighten its monetary policy sooner rather than later.

The global markets cheered the Biden administration’s multi-trillion spending plan, which was evident from an extension of a strong rally in the global equity markets. This might extend some support to the perceived riskier kiwi and help limit any further losses for the NZD/USD pair ahead of Friday’s release of the key inflation data from the US.

The US Bureau of Economic Analysis (BEA) will release the Fed’s preferred inflation gauge – the core PCE Price Index later this Friday. This, along with the US stimulus headline, will drive the US bond yields and influence the USD. Traders might further take cues from the broader market risk sentiment to grab some short-term opportunities around the NZD/USD pair.

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