- NZD/USD gained some positive traction on Monday and snapped a seven-day losing streak.
- The USD witnessed some profit taking from a 19-month high and extended some support to the pair.
- The Fed’s aggressive stance and cautious market mood should help limit USD losses and cap the pair.
The pair NZD / USD it maintained its bid tone during the first half of the European session and was last seen trading near the daily high around the 0.6580 area.
The pair witnessed a short-covering bounce on the first day of a new week amid oversold conditions on the daily chart and snapped a seven-day losing streak. The rally allowed the NZD/USD pair to reverse Friday’s losses to the lowest level since September 2020 and was supported by modest US dollar weakness.
The USD pullback lacked an obvious fundamental catalyst and could be attributed to some profit taking after the post-FOMC bull run to a 19-month high. That said, the prospects of a faster Fed policy tightening should act as a tailwind for the dollar and limit any significant recovery for the NZD/USD pair.
In fact, markets have fully discounted a possible departure of the Fed in March and expect rate increases five quarter point by the end of 2022. This was reinforced by high yields of bonds of the US Treasury which supports the prospects arising some shopping at the dollar falls and warrants caution before making bullish bets around the pair NZD / USD.
Aside from this, an intraday turnaround in US equity futures should provide more support to the safe-haven dollar and limit the perceived riskier kiwi. This, in turn, makes it prudent to wait for strong follow-on buying to confirm that the NZD/USD pair has bottomed out and is positioned for further gains.
Market participants now look forward to the US economic docket, highlighting the release of the Chicago PMI. This, along with US bond yields, will influence the USD price dynamics. Aside from this, traders will take note of the broader market risk sentiment to take advantage of some short-term opportunities around the NZD/USD pair.
Technical levels
Source: Fx Street
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
