After climbing for five consecutive days to a near one-month high, the New Zealand dollar fell against the US dollar on Tuesday. As the European session begins, the pair is on the back foot between 0.6335 and 0.6330, while more weakness seems improbable.

The overnight increase in US Treasury bond yields provided USD support and acted as a headwind for the NZD/USD currency pair. Credit conditions for US firms and individuals were tightened by rapid rate hikes, according to the Fed’s quarterly Senior Loan Officer Opinion Survey (SLOOS) released on Monday. As a result, investors were willing to pay higher bond yields for US debt in the hope that the US banking system would survive.

The USD’s potential growth is constrained by the Fed’s more cautious stance. The Federal Reserve of the United States has hinted at pausing its rate-hiking cycle that has been going on for the past year and declared a tougher, data-driven approach to rate hikes last week. Investors also believe a Fed rate drop will occur later this year. Together, these and the RBNZ rate hikes should keep the NZD/USD from falling too much.

Investors may wait until Wednesday’s US consumer inflation data is released before making any significant wagers. Near-term USD demand is being driven by the major US CPI report, which in turn will decide the future trend of the NZD/USD pair. Investors will focus on New York Fed President John Williams’ speech on Tuesday in the absence of major economic data from the United States.

Trade Idea

Consider waiting for Wednesday’s US CPI report before taking any significant positions on NZD/USD. The Fed’s cautious approach and potential rate cuts, along with RBNZ rate hikes, may limit downside risks.