• Rising bets for an additional RBNZ rate hike move pushed NZD/USD to over four-month tops.
• Rallying US bond yields helped revive the USD demand and capped the upside for the major.
• Any meaningful corrective slide could be seen as a buying opportunity and remain limited.

The NZD/USD pair traded with a positive bias through the early part of the European session, albeit has retreated a few pips from over four-month tops touched earlier this Wednesday.

The pair built on the previous day's bullish breakout momentum beyond the very important 200-day SMA, around the 0.7100 mark and gained traction for the sixth successive day. The momentum pushed the NZD/USD pair to the highest level since June 11 and was sponsored by rising bets that the RBNZ will hike interest rates further to contain stubbornly high inflation.

The quarterly CPI report released earlier this week showed consumer prices in New Zealand rose 4.9% YoY, a decade-high speed during the July-September period. This comes amid the dominant risk-on mood in the markets, which further acted as a tailwind for the perceived riskier kiwi. That said, a combination of factors capped the upside for the NZD/USD pair.

The US dollar drew some support from the continuous surge in the US Treasury bond yields, bolstered by prospects for an early policy tightening by the Fed. In fact, the yield on the benchmark 10-year US government bond shot to the highest level since May, around 1.672% amid growing market acceptance that the Fed will soon begin rolling back its massive pandemic-era stimulus.

The markets also seem to have started pricing in the possibility of a potential interest rate hike in 2022 amid fears about a faster-than-expected rise in inflation. Adding to this, a generally cautious mood around the equity markets further benefitted the safe-haven greenback and collaborated to keep a lid on any further gains for the perceived riskier kiwi.

Investors also seemed reluctant to place fresh bullish bets around the NZD/USD pair amid overbought conditions on short-term charts and absent relevant market moving economic releases from the US. That said, scheduled speeches by Chicago Fed President Charles Evans and Fed Governor Randal Quarles might provide some impetus later during the North American session.

Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities. Nevertheless, the bias remains tilted in favour of bullish traders and any meaningful pullback is more likely to remain limited, rather attract some dip-buying near the 0.7100 round-figure mark.

Technical levels to watch