New Zealand Dollar steadies as softer US bond yields keep USD on the defensive

The NZD/USD pair struggles to capitalize on the previous day's modest recovery gains and edges lower during the Asian session on Friday. Spot prices, however, hold above the lowest level since July 9, touched on Wednesday, and currently trade around the 0.5730 region, nearly unchanged for the day.

The Reserve Bank of New Zealand's (RBNZ)  cautious stance counters the better-than-expected domestic GDP report published on Thursday and is seen as a key factor behind the New Zealand Dollar's (NZD) relative underperformance. Meanwhile, the US Dollar (USD) struggles to lure buyers as US bond yields retreat further from multi-year highs amid receding fears of runaway inflation due to a modest pullback in crude oil prices. The combination of diverging forces, in turn, holds back bearish traders from placing aggressive bets and acts as a tailwind for the NZD/USD pair.

The downside for the USD, however, seems limited on the back of the Federal Reserve's (Fed) hawkish outlook. In fact, the US central bank raised interest rates for the first time in over three years at the conclusion of the September meeting on Wednesday. Moreover, the so-called dot plot revealed that Fed officials expect one more interest rate increase this year. Adding to this, oil-driven inflation fears underpin prospects for further Fed tightening, which, along with persistent geopolitical uncertainties, act as a tailwind for the safe-haven buck and should cap the NZD/USD pair.

Traders now look forward to Friday's second-tier US macro data – Industrial Production and Capacity Utilization Rate. Apart from this, speeches from influential FOMC members and further developments surrounding the Middle East crisis will drive the USD, providing some impetus to the NZD/USD pair. Nevertheless, spot prices remain on track to register heavy losses for the fourth straight week. Moreover, the aforementioned fundamental backdrop seems tilted in favor of USD bulls, suggesting that any meaningful recovery attempt is more likely to be sold into.