NZD/USD appreciates further, nearing 0.7100

• The kiwi extends gains beyond 0.7040 to approach 0.7100 area.
• Risk appetite is supporting the NZD against a weaker USD.
• NZD/USD: Breach of 0.6980 might send the pair to 0.7400 – Westpac.

New Zealand keeps heading north for the third consecutive day on Friday. The pair has breached previous highs at 0.7030/40 area and is reaching levels near 0.7100, on track to a 2.15% appreciation this week, after having lost about 4% in September's sell-off.  

The NZD appreciates as the market sentiment brightens

The risk-sensitive kiwi has rallied sharply over the last three days on the back of a higher appetite for risk. The release of better-than-expected quarterly earnings in the financial sector has sent equity markets higher, weighing on safe assets like the USD.

The US Dollar Index, which measures the value of the dollar against the most traded currencies, has depreciated this week for the first time since late August. The greenback, which had reached one-year highs earlier this week, lost momentum over the last half of the week after the US CPI confirmed the persistent inflationary pressures in consumer prices, and the Fed reassured that they will start rolling back their monetary stimulus program before the end of the year.

Furthermore, The US Treasury yields' rally, has lost steam this week. The yield of the benchmark 10-year note retreated from levels above 1.60% on Monday to week lows around 1.51% on Thursday, while shorter-term yields have surged to multi-month highs, thus flattening the US yield curve.

NZD/USD: Breach of 0.6980 might send the pair towards 0.7400– Westpac

From a technical perspective, the FX Analysis team at Westpac observes the pair right below a key level, that might accelerate the uptrend: “NZD/USD has been rangebound inside 0.6860-0.6980, with few near-term directional clues. One possibility is that the downward correction since early September is complete, and a base is forming to launch a retest of 0.7200 multi-week, and 0.7400 by year-end”.

Technical levels to watch