- NZD/USD’s recovery from one-month lows is gathering traction.
- NZ’s 10-year bond yield is flashing green and could rise further on trade optimism.
- Kiwi has been closely following NZ’s bond yield since the beginning of the month.
NZD/USD is extending a recovery from one-month lows reached Wednesday, as New Zealand’s 10-year bond yield is flashing green.
The currency pair is currently trading near the 10-day average at 0.6636, having hit a low of 0.6584 on Wednesday. That was the lowest level since Dec. 19.
The recovery from four-week lows could be associated with the two basis point rise in New Zealand’s 10-year yield. The benchmark yield bottomed out at 1.48% on Jan. 12, signaling an end of the pullback from the Jan. 3 high of 1.68% and is currently trading at 1.52%.
Interestingly, the Kiwi dollar also faced selling pressure in the first two weeks of this month, falling from 0.6750 to levels below 0.6 and is now showing signs of life.
Looking forward, the benchmark bond yield could rise further due to optimism on the trade front. The US and China on Wednesday signed the much-anticipated phase-one trade deal. Further, the two nations have begun discussions on a phase two deal, Vice President Pence informed markets.
The NZD/USD pair, therefore, could rise above the 10-day average during the day ahead. However, if stocks come under pressure, NZD/USD will likely trim gains.
That possibility cannot be ruled out, as Yuan, equities and other markets have been pricing in a potential deal since November and could witness sell-the-fact trade now that the deal has been signed.