NZD/USD bounces from weekly lows, erasing Wednesday’s losses, trades around 0.6240s

• A soft US dollar boosts appetite for risk-sensitive currencies in the FX space, so the NZD rises.
• The US 10-year Treasury yield dips below the 3% threshold, undermining the greenback.
• US recession fears increased after GDP for the first quarter contracted -1.5%, while Atlanta’s Fed GDPNow projections for the Q2 lie at -1.0%.

Broad US dollar weakness bolstered the New Zealand dollar on Thursday after mixed US economic data was released, which did not change the sour mood surrounding the financial markets since the beginning of the week. At 0.6247, the NZD/USD climbs nearly 0.50% during the North American session at the time of writing.

The greenback dipped on lower inflation expectations and falling US Treasury yields

As mentioned above, a soft US dollar is the main reason for the NZD/USD gains. The fall in US Treasury yields and lower US inflation expectations, as shown by the five and 10-year FRED Breakevens, undermined the greenback. Investors are backpedaling an aggressive Fed, and as illustrated by STIRs money market futures, traders expect the Federal funds rate to end at around 3.50% in twelve months.

Sentiment-wise, increased fears that the US could hit a recession were exacerbated by a weaker than expected consumer spending in May, alongside the Atlanta Fed’s GDPNow for the Q2, which plunged to -1.0%. Meanwhile, Wall Street is about to finish the first half of 2022 with substantial losses. The US Dollar Index, a gauge of the buck’s value, retreated from weekly highs near 105.541 and slid 0.35% down to 104.733.

On Thursday, US economic data was released. The US Bureau of Economic Analysis reported the PersonaLConsumption Expenditure (PCE) Price Index for May, which climbed by 6.3% YoY, less than estimations, while core PCE, the Fed’s favorite reading for inflation, heightened by 4.7% YoY, lower than expected.

At the same time, the US Department of Labour released the Initial Jobless Claims for the week ending on June 25, which topped above the 228K expected, and rose by 231K.

In the meantime, the Federal Reserve chair Jerome Powell crossed wires. He said policymakers’ job is to find price stability, even during the new forces of inflation, while adding that the US economy is solid and can withstand monetary policy adjustments.

The New Zealand economic calendar will feature the ANZ Roy Morgan Consumer Confidence for June is expected at 8, alongside the New Zealand Building Permits for May. On the US front, the calendar will reveal the  S&P Global Manufacturing PMIs alongside the ISM Manufacturing PMI.

NZD/USD Key Technical Levels