NZD / USD with modest gains just below 0.6800, lacks bullish conviction

• The NZD / USD gains some positive traction on Tuesday and recovers a portion of the previous day’s losses.
• Risk appetite is seen as a key factor benefiting the higher perceived risk NZD.
• High US bond yields benefit the USD and limit any significant rise in the pair.

The pair NZD / USD moves with a slight positive bias at the start of the European session on Tuesday, remaining only a few few pips below the round level of 0.6800.

The pair attracted some buying during the first half of trading on Tuesday and recovered a portion of the previous day’s retracement drop from the 0.6855 region, or a month-long high. The risk appetite predominant was seen as a key factor that offered some support to the NZD of higher perceived risk. Despite the continued rise in COVID-19 cases globally, investors remain optimistic about signs that the omicron variant could be less severe than feared and it is unlikely to derail the economic recovery. This was evident by the recent sharp rise in stock markets to all-time highs.

The rebound, however, lacked bullish conviction And for now, it has struggled to find acceptance above the 0.6800 level amid a modest strength in the US dollar. Expectations of a faster tightening of monetary policies by the Federal Reserve They triggered a massive rally in U.S. Treasury yields on Monday, which in turn continued to act as a tailwind for the USD. In fact, money markets have fully priced a first rate hike in May and two more in late 2022. This, in turn, pushed the benchmark 10-year US government bond yield to 1.6420%, or the highest level since November 24.

Furthermore, investors also seemed reluctant to open aggressive positions and may rather prefer to wait on the sidelines before this week’s key data / event. Quite a busy week in terms of important macroeconomic data from the United States It begins with the release of the ISM Manufacturing PMI and JOLTs job openings at the start of the American session today. The Fed is also due to release minutes from its December meeting on Wednesday, to be followed by the ADP report and the ISM services PMI on Thursday. The key focus, however, will remain on Friday’s monthly US NFP employment report.

The mixed fundamental backdrop warrants some caution for the bulls and makes it prudent to wait for sustained force above the 0.6855 resistance zone before positioning for any further gains. This would reaffirm that the NZD / USD pair has formed a short-term bottom near the round level of 0.6700, the 2021 low touched on December 15, and has set the stage for some significant bullish movement.

NZD / USD technical levels