NZD/USD bounces at 0.6875 and returns to 0.6900 area

• The kiwi finds support at 0.6875 to attempt to regain the 0.6099 level.
• Inflation pressures sour risk sentiment, buoying the US dollar's rebound.
• NZD/USD: Crucial support at 0.6860 – SocGen.

The New Zealand dollar seems to have found support at 0.6875 on its reversal from the 0.6980 area to trim losses during Wednesday’s US session, attempting to return above 0.6900.

The USD bounces up on safe-haven flows

The NZD has accelerated its reversal from week highs near 0.7000 in a risk-off trading session, with investors increasingly concerned about inflationary pressures. Crude oil has surged to fresh seven-year highs, with WTI trading right below the $80 mark, which might pose a challenge for the post-COVID-19 recovery.

Earlier today the Reserve Bank of New Zealand hiked interest rates, by 25 basis points to 0.50%, for the first time in seven years and confirmed its intention to continue removing its monetary stimulus scheme. The move was already priced in by the market and has no impact on the NZD.

Furthermore, the macroeconomic docket has shown the USD ADP employment report beating expectations in September with a 568.000 increase on private payrolls. These figures anticipate a bright Non-Farm Payrolls report on Friday, that might prompt the Federal Reserve to officially announce the end of QE.

NZD/USD: Right above crucial support at 0.6860 – SocGen

According to the FX Analysis team at Societe Generale, the pair is now hovering above a crucial support area to maintain its near-term positive trend: “The kiwi has carved out a higher trough at 0.6860 recently. So long as this doesn’t get violated, the bounce is expected to persist (…) A move beyond 0.6980, the 38.2% retracement from September can take the pair towards a multi-month descending trend line near 0.7110 which is also the 200-DMA with the next hurdle at September high of 0.7180/0.7215.”

Technical levels to watch