NZD/USD hits YTD low amid rising geopolitical tensions, high US bond yields

• Geopolitical tensions escalate as Iran intensifies rhetoric against Israel, leading to heightened risk aversion.
• Mixed US data: Housing Starts rose by 7% in September, while Building Permits declined by 4.4%.
• Despite elevated inflation in New Zealand, the RBNZ is expected to maintain its current monetary policy stance..

The New Zealand Dollar (NZD) plunged to a new year-to-date (YTD) low of 0.5851 against the US Dollar (USD) on Wednesday, spurred by risk aversion and the jump in US Treasury bond yields. Geopolitical tensions underpin the Greenback to the detriment of high-beta currencies, like the Kiwi Dollar (NZD). The NZD/USD exchanges hands at around 0.5855, down 0.69%.

Kiwi Dollar faces selling pressure as risk aversion dominates

The market mood remains fragile as Wall Street registers losses. US President Biden's visit to the Middle East has failed to pour cold water into a conflict that could escalate further, as Iran’s intensified its rhetoric against Israel, as reported by Bloomberg. An explosion at a Gaza hospital re-ignited fears amongst traders of a possible escalation as global bond yields soared.

On Tuesday, US Retail Sales and Industrial Production portrayed the economy as solid, though failed to change the latest US Federal Reserve (Fed) officials dovish rhetoric, despite inflation being almost twice the Fed’s target. Today, US data was mixed, with September’s Housing Starts climbing 7%, exceeding forecasts, while Building Permits tanked -4.4%.

Given the backdrop, we could’ve expected a repricing for a hawkish Fed. Still, money market futures have disregarded a 25-bps hike for November, while December and January remain on, with the latter odds at 51.65%.

On the New Zealand front, the last Consumer Price Index (CPI) report revealed that inflation remains elevated, suggesting the Reserve Bank of New Zealand (RBNZ) would stick to its higher for a longer posture. Even though Wednesday’s Chinese data showed the economy is growing faster than foreseen, sentiment deterioration triggered outflows from risk-perceived currencies toward safe-haven peers.

NZD/USD Price Analysis: Technical outlook

The NZD/USD falling to a new YTD low opened the door for further losses, with first support seen last year’s November 22 swing low of 0.5840. A breach of the latter would expose the November 3 daily low of 0.5740, followed by October 21, 2022, a swing low of 0.5599. On the other hand, if NZD/USD stays above 0.5900, that would keep buyers hopeful of reaching the 50-day moving average (DMA) at 0.5937.