NZD/USD flirts with 19-week top around 0.7200 on upbeat sentiment, weaker USD

• NZD/USD grinds higher after refreshing four-month peak, six-day uptrend.
• Carry trade, firmer equities and US Treasury yields’ retreat favor pair buyers.
• ANZ rate change, UK-NZ free trade deal add to the bullish bias.
• Risk catalysts remain on the driver’s seat amid a light calendar.

NZD/USD edges higher around multi-day top close to 0.7200 during early Thursday morning in Asia. Alike other major currency pairs, the quote also cheers broad US dollar weakness, in addition to the carry trade opportunity that has been applauded of late.

The US Dollar Index (DXY) prints a six-day south-run near the lowest levels in three weeks, flashing 93.60 level by the end of Wednesday’s North American session. The greenback gauge failed to benefit from the tapering signals from Federal Reserve Governor Randal Quarles as equities rallied on firmer earnings and the Treasury yields also softened after refreshing the multi-day top.

That said, Wall Street benchmarks gained upside momentum amid strong Q3 reports from the industry leaders like Tesla and chatters over US stimulus passage. The same exerted pressure on the 10-year Treasury yields around 1.66%, up 2.6 basis points (bps), following the bond yields’ run-up to the five-month high.

On the other hand, the Fed policymaker Quarles said, per Reuters, “Fed to begin dialing down its bond-buying program, it would be "premature" to start raising interest rates in the face of high inflation that is likely to recede next year.”

It’s worth observing that Evergrande’s failure to seal the asset sale deal with Hopson Development Holdings and fears that China’s economy is gradually losing momentum probe NZD/USD bulls, despite being ignored so far.

Above all, the Reserve Bank of New Zealand’s (RBNZ) rate hike gives rise to the carry and backs the NZD/USD bulls. Though, fears surrounding the virus-led activity restrictions’ impact on the jobs seem to poke the RBNZ hawks even as the September inflation figures came in strong earlier in the week.

Additionally, the recent news suggesting higher interest rates for the housing loan consumers, raised by the Australia and New Zealand Banking Group (ANZ) also propelled the RBNZ towards another rate hike. Furthermore, the news relating to the UK and New Zealand’s (NZ) agreement over a free trade deal adds to the NZD/USD strength.

“NZ stands a better chance than most to be able to keep inflation expectations anchored. That in turn speaks to FX markets focusing on carry, not high inflation. A higher NZD will also help tame inflation; that reward “should” go to those who are proactive,” said the ANZ.

Moving on, a lack of major data/events will highlight risk catalysts as crucial factors to watch for fresh impulse ahead of the US session when the weekly jobless claims and monthly housing data may entertain traders.

Technical analysis

A clear upside break of September’s top surrounding 0.7170 enables NZD/USD bulls to aim for May’s peak near 0.7320. However, overbought RSI conditions may probe the advances with intermediate pullbacks.