NZD/USD jumps to fresh one-month tops, around 0.7125 region

• NZD/USD gained strong follow-through traction for the fifth consecutive session on Tuesday.
• Retreating US bond yields prompted fresh USD selling and provided a goodish lift to the pair.
• A softer risk tone did little to hinder the momentum beyond the 0.7100 confluence barrier.

The NZD/USD pair surged past the 0.7100 round figure during the Asian session and shot to one-month tops, around the 0.7125 region in the last hour.

The pair built on its recent strong rally from the vicinity of the 0.6900 mark and gained strong follow-through traction for the fifth consecutive session on Tuesday. Following the previous day's two-way price moves, the US dollar met with some fresh supply amid a further pullback in the US Treasury bond yields. This, in turn, was seen as a key factor that provided a goodish lift to the NZD/USD pair.

Bulls seemed rather unaffected by a generally softer tone around the equity markets, which tends to undermine the perceived riskier kiwi. Fears that a faster-than-expected rise in inflation could derail the global economic recovery weighed on investors' sentiment. The concerns were further fueled by Monday's disappointing Chinese data, showing that the economic growth decelerated sharply from 7.9% to 4.9% during the third quarter.

Nevertheless, the NZD/USD pair finally broke through a confluence barrier, comprising of the very important 200-day SMA and a downward sloping trend-line extending from YTD tops touched in February. This could be seen as a fresh trigger for bullish traders and might have already set the stage for a further near-term appreciating move.

That said, prospects for an early policy tightening by the Fed might help limit any deeper USD losses and cap the upside for the NZD/USD pair. Investors seem convinced that the Fed will begin tapering its bond purchases in 2021 and have been pricing in the possibility of a rate hike in 2022 to counter growing inflation risks.

This, in turn, warrants some caution for aggressive bullish traders amid absent relevant market-moving economic releases on Tuesday. Traders now look forward to a scheduled speech by Fed Governor Michelle Bowman. This, along with the US bond yields and the broader market risk sentiment, might influence the USD and provide some impetus to the NZD/USD pair.

Technical levels to watch