- NZD / USD registers a modest bounce from multi-month lows amid a modest USD retracement.
- Risk appetite drives USD profit taking and benefits the higher perceived risk NZD.
- Any significant rally seems elusive, warranting caution on aggressive bulls.
The pair NZD / USD has risen near the daily highs, around the 0.6980-85 region, during Thursday’s European session and is clinging to its modest intraday gains, recovering a portion of the previous day’s losses to four-month lows.
The pair has seen strong selling during the first half of this week’s trading action and has come under pressure from a combination of factors. The New Zealand government announced on Tuesday a series of measures to cool down the housing market. The move that eased pressure on the Reserve Bank of New Zealand (RBNZ) to raise rates has eased, which has weighed heavily on the New Zealand dollar.
On the other hand, the US dollar has been supported by prospects for a relatively faster US economic recovery from the pandemic, reinforced by the approval of a massive stimulus package. This has been seen as another factor that has contributed to this week’s sharp decline in the NZD / USD pair below the key psychological level of 0.7000, to the lowest level since the end of November.
In the meantime, a positive start in US equity futures has helped ease the downward pressure and helped the NZD / USD pair stop the downward movement near the 0.6950 region, at least for now. Global risk sentiment has benefited slightly after updated US trial results showed that the Oxford / AstraZeneca coronavirus vaccine was 76% effective in preventing symptomatic illness.
Optimistic market sentiment has sparked some profit-taking around the US dollar safe haven and has offered some support to the NZD with the highest perceived risk. That said, growing concerns about a third wave of COVID-19 infections in Europe limit any significant risk appetite movement. This could prevent the bulls from getting aggressive around the NZD / USD pair and limiting the pair’s rally.
Therefore, it will be wise to wait for some solid continuation buying before positioning for any further bullish movement. Market participants are now awaiting the release of the final fourth quarter US GDP report for further momentum. This, coupled with scheduled speeches from a large number of FOMC members, could sway the USD and lead to some trading opportunities around the NZD / USD pair.
NZD / USD technical levels
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