NZD/USD flirts with 100-day SMA support, around 0.7030-25 area

• A combination of factors failed to assist NZD/USD to preserve its early gains.
• The cautious market mood acted as a headwind for the perceived riskier kiwi.
• Rising bets for another RBNZ rate hike could help limit any meaningful decline.
• Investors now look forward to the US monthly Retail Sales for a fresh impetus.

The NZD/USD pair extended its steady intraday descent through the early European session and refreshed daily lows, around the 0.7030-25 region in the last hour.

The pair struggled to capitalize on its early uptick, instead met with some fresh supply near the 0.7070 region and was pressured by a combination of factors. Worries about a faster than expected rise in inflationary pressures continued weighing on investors sentiment. This was evident from the cautious mood around the equity markets, which acted as a headwind for the perceived riskier kiwi.

On the other hand, the US dollar stood tall near 16-month tops touched in the previous day and remained supported by hawkish Fed expectations. Investors seem convinced that the US central bank would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. In fact, the markets have been pricing in the possibility for an eventual Fed rate hike move by July 2022.

That said, retreating US Treasury bond yields held the USD bulls from placing aggressive bets. This, along with rising bets for yet another rate hike by the Reserve Bank of New Zealand (RBNZ) in November, should help limit any deeper losses for the NZD/USD pair. It is worth recalling that the RBNZ had raised interest rates by 0.5% in October to curb the continuous rise in inflation.

Nevertheless, the NZD/USD pair, for now, seems to have snapped two consecutive days of the winning streak and was last seen flirting with 100-day SMA support. Market participants now look forward to the US economic docket, highlighting the release of monthly Retail Sales figures. Traders will further take cues from the broader market risk sentiment for some opportunities around the NZD/USD pair.

Technical levels to watch