NZD/USD struggles for direction, flat-lined below 0.7000 mark
- Renewed USD buying failed to assist NZD/USD to build on the overnight positive move.
- The Fed’s hawkish turn, rebounding US bond yields acted as a tailwind for the greenback.
- The generally positive risk tone helped limit the downside for the perceived riskier kiwi.
The NZD/USD pair bounced around 20 pips from Asian session lows, albeit lacked follow-through buying interest. The pair was last seen hovering in the neutral territory, around the 0.6980-85 region.
The pair struggled to capitalize on the overnight recovery move from the lowest level since November 2020 and witnessed a subdued price action through the first half of the trading action on Tuesday. The US dollar was back in demand and remained well supported by the Fed's surprise hawkish turn last week. Apart from this, some follow-through uptick in the US Treasury bond yields acted as a tailwind for the greenback and capped the NZD/USD pair below the key 0.7000 psychological mark.
Meanwhile, St. Louis Fed President James Bullard said on Monday that the Fed should be prepared for inflation to surprise on the high end through next year. Adding to this, the Fed Chair Jerome Powell – in prepared testimony for the congressional hearing – also highlighted rising inflation pressures. This, in turn, pushed the yield on the benchmark 10-year US government bond back closer to the 1.50% threshold and was seen another factor that underpinned the greenback.
That said, a generally positive tone around the global equity markets held traders from placing any aggressive bullish bets around the safe-haven USD and helped limit losses for the perceived riskier kiwi. The NZD/USD pair attracted some buying near the 0.6935-30 region, though any meaningful upside still seems elusive ahead of the Fed Chair Jerome Powell's testimony before the House Select Subcommittee on the Coronavirus Crisis later this Tuesday.
In the meantime, the US economic docket, featuring the second-tier releases of Existing Home Sales and Richmond Manufacturing Index – will be looked upon for some short-term impetus. Traders might further take cues from the US bond yields and the broader market risk sentiment. This might influence the USD price dynamics and produce some trading opportunities around the NZD/USD pair.
Technical levels to watch