New Zealand Dollar moves sideways as US Dollar stabilizes amid rising bond yields

NZD/USD experienced volatility after posting modest losses in the previous day, remaining in positive territory and trading around 0.5600 during Asian hours on Thursday. However, the pair could face further downside as the US Dollar (USD) gains support from US Treasury bond yields rebounding toward their highest levels since 2002.

The yield on the US 10- and 30-year Treasury notes trade around 5.31% and 5.70%, respectively, at the time of writing. Traders are now looking toward upcoming speeches from Federal Reserve (Fed) officials, including Christopher Waller and Alberto Musalem, for further directional cues.

Meanwhile, a recent spike in oil prices has reignited concerns over persistent inflation, strengthening the prospect of higher interest rates. Federal Reserve policy expectations continue to anchor sentiment. According to the minutes from the Fed's last meeting, policymakers were united in supporting their September rate hike, with a majority agreeing that an additional increase by year-end would be appropriate.

While markets largely anticipate the central bank will keep rates on hold at its October policy meeting, CME's FedWatch tool indicates traders are still pricing in a 78.3% probability of a rate hike in December.

Dollar regains broad traction after recent G10 dispersion

Strategists at Scotiabank highlight that the US Dollar has reasserted itself across the majors, noting that “the USD is once again showing broad strength for the first time in nearly a week” after a period in which “the G10 currencies had shown some dispersion in their performance.” This renewed, across-the-board advance marks a clear shift from the more uneven trading seen in recent sessions.

Financial markets are anticipating further monetary action following the recent Reserve Bank of New Zealand (RBNZ) 25-basis-point rate hike. Money markets have fully priced in another rate hike by December, with investors closely watching the RBNZ's upcoming policy decision scheduled for October 28.