- Moderate USD demand triggers a short hedging move around NZD / USD on Wednesday.
- Expectations of a less pessimistic Fed could act as a tailwind for USD gains and limit gains in the pair.
- Investors are now looking forward to the long-awaited FOMC decision for new directional momentum.
The pair NZD / USD has moved higher during the European session on Wednesday, rising towards the region of 0.7150, amid a slight weakness in the US dollar.
Having found some support near the 0.7100 level, the NZD / USD pair has regained positive traction on Wednesday and now it has reversed the negative movement of the previous day to two-month lows. The rally lacks any obvious fundamental catalyst and could be attributed solely to some short hedging move amid subdued demand for the US dollar.
A softer overall tone around US Treasury yields has failed to help the USD capitalize on the positive move the day before to month-long highs. Having said that, expectations of a slightly less pessimistic Fed could help put possible support below the dollar and limit any further gains for the NZD / USD pair.
Investors may have started to price down the prospects for an earlier withdrawal of stimuli amid concerns about rising inflationary pressure. Concerns were further fueled by the hotter-than-expected US producer price index on Tuesday. Therefore, key attention will be focused on the long-awaited FOMC decision, to be held later during today’s American session.
Investors will be on the lookout for clues about a possible change in monetary policy outlook and whether members have started the discussion to reduce the current $ 120 billion in monthly bond purchases. This will play a key role in the USD price action in the short term and will provide further directional momentum to the NZD / USD pair.
Heading into the key event, investors appear reluctant to take excessive risk. This has been evidenced by cautious sentiment around equity markets, which should further help limit the gains of the higher perceived risk NZD. Therefore, it will be wise to wait for some strong continuation buying before opening new bullish positions.
NZD / USD technical levels
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