NZD/USD bears approach 2020’s bottom as DXY cheers firmer yields, hawkish Fed bets

• NZD/USD prints four-day downtrend to refresh 2.5-year low.
• RBNZ’s Orr, mixed Fedspeak failed to trigger corrective bounce as yields renew multi-year high.
• US inflation, Fed Minutes will be crucial for the week but bears are likely to keep the reins.

NZD/USD bears hold onto the control as the quote renews a 31-month low around 0.5535, close to 0.5545 heading into Tuesday’s European session. The kiwi pair’s latest fall takes clues from the broad US dollar strength as traders rush towards the risk safety amid the first day of full markets.

In doing so, the quote ignores the early Asian session comments from the Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr. That said, RBNZ’s Orr reiterated that there is more work to do to reduce inflation.

Also could have challenged, but ignored, were the mixed comments from the Fed policymakers. Chicago Fed President Charles Evans said on Monday that the US can lower inflation relatively quickly without recession or a large increase in unemployment. The policymaker also added that the Fed needs to "carefully and judiciously" navigate to a "reasonably restrictive" policy rate. It should be noted that Federal Reserve Vice Chair Lael Brainard made the case for cautious rate hikes for the future, per the Wall Street Journal (WSJ).

It’s worth noting that the US Dollar Index (DXY) prints 0.21% intraday gains as it prints a five-day uptrend near 113.40. In doing so, the greenback’s gauge versus the six major currencies traces the US Treasury yields as the US 30-year Treasury yields rise to a fresh high since January 2014 whereas the 10-year counterpart pokes the 4.0% threshold. Also favoring the DXY is the CME’s FedWatch Tool which signals a 78.4% chance of the Fed’s 75 bps rate hike in November.

Furthermore, the recently fierce Russia-Ukraine tussles and the Sino-American tensions add strength to the risk-aversion wave that drowns the NZD/USD prices. While portraying the mood, the S&P 500 Futures that drop 0.50% as bears lean towards the monthly low.

Moving on, multiple Fed policymakers are up for speeches during the day and can entertain NZD/USD traders, mostly the sellers. However, major attention will be given to the Federal Open Market Committee (FOMC) Meeting Minutes and the US Consumer Price Index (CPI) data for September, up for publishing on Wednesday and Thursday respectively.

Technical analysis

A clear downside beak of the previous monthly low directs NZD/USD towards the year 2020’s bottom surrounding 0.5470.