NZD/USD hits five-month low as yield spread drops in NZD negative manner

• Kiwi is being offered on RBNZ's benign inflation outlook.
• 10Y NZ-US yield spread drops further into negative territory, hurts NZD.

The NZD/USD pair is trading at a five-month low of 0.6930 and looks set to extend losses further.

The Reserve Bank of New Zealand (RBNZ) left interest rates unchanged at 1.75% earlier today, but said: "the outlook for domestic inflation remains benign, with non-tradable inflation forecast to increase only very gradually."

Further, Governor Orr added that best way to push inflation to target is to keep the overnight cash rate (OCR) at the current expansionary level for a prolonged period.

Clearly, the statement titled towards the dovish side as indicated by a four basis points rally in the 2-year swap. Also, the spread between the 10-year New Zealand and US bond yield has dropped to fresh record low of -19 basis points.

Hence, Kiwi will likely remain on the back foot and may run into more offers if the US consumer price index (CPI) due later today betters estimates.

NZD/USD Technical Levels

A break below 0.69 (psychological support) would open up downside towards 0.6822 (Dec. 8 low) and 0.6818 (Oct. 27 low). On the other hand, a break above 0.6949 (resistance in 1-hour chart) would allow re-test of 0.6978 (50-hour moving average) and 0.6997 (resistance in 1-hour chart).