• Kiwi's rebound from 0.6910 stalls below 0.6970/80 resistance area.
• The dollar loses ground with the US yield curve flattening.
• The FOMC minutes confirm QE tapering before the end of the year.

New Zealand's dollar has bounced up from session lows at 0.6910 on Wednesday to erase Tuesday’s losses, favoured by a somewhat softer US dollar. The pair however has stalled below the top of the last week’s trading range at 0.6970/80

The USD treads water as the US yield curve flattens

The kiwi has been favored by a moderate USD weakness on Wednesday with the flattening US yields’ curve weighing on the US dollar. The yield of the US 10-year note has dropped to 1.54% on Wednesday from 5-month highs at 1.61% on Tuesday while the 2-year yield surged to 18-month highs.

The economic calendar has failed to offer support to the dollar. The minutes of Federal Reserve’s September’s meeting have supported the idea that QE tapering might be officially announced next month, stating that “a gradual tapering process that concluded around the middle of next year would likely be appropriate”

Beyond that, some participants have acknowledged that inflation pressures might remain for a longer than expected period and have suggested the possibility of start hiking interest rates by the end of next year.

Previously, the US CPI confirmed market expectations that high inflation remains looming over the post-pandemic recovery, which bears into question Fed Powell’s theory of “temporary” inflation. Consumer prices accelerated to a 0.4% monthly pace in September, from 0.3% in August, with the yearly inflation increasing to 5.4% from 5.3% on the previous month.

Technical levels to watch