- NZD/USD extended its sideways consolidative price action for the second straight day.
- Investors now seemed reluctant to place aggressive bets ahead of the FOMC decision.
The NZD/USD pair lacked any firm directional bias and remained confined in a narrow trading band below the 0.7200 mark through the first half of the trading action on Wednesday.
The pair failed to capitalize on its gains recorded on the first day of the current week and has been oscillating in a range over the past two trading sessions. Investors turned caution following the temporary suspension of the Oxford/AstraZeneca coronavirus vaccine in Europe. This, in turn, was seen as a key factor that kept a lid on any meaningful upside for the perceived riskier kiwi.
On the other hand, the US dollar continues to benefit from the prospects for a faster US economic recovery from the pandemic and largely shrugged off Tuesday’s disappointing US Retail Sales figures. Apart from this, the recent runaway rally in the US Treasury bond yields further underpinned the greenback and further collaborated towards capping the NZD/USD pair below the 0.7200 mark.
The upbeat US economic outlook – bolstered by the passage of a massive stimulus package – has been fueling speculations about a possible uptick in US inflation. This, in turn, raised doubts that the Fed would retain ultra-low interest rates for a longer period and pushed the yield on the benchmark 10-year US government bond back above 1.6%, closer to over one-year tops touched last week.
That said, expectations that the Fed could take some action to curb any further rise in long-term borrowing cost acted as a headwind for the US bond yields. This seemed to be the only factor that held the USD bulls from placing aggressive bets and extended some support to the NZD/USD pair. Hence, the focus will remain on the FOMC policy decision, scheduled to be announced later this Wednesday.
Apart from this, Thursday’s release of the quarterly GDP report from New Zealand will play a key role in influencing the NZD/USD pair and assist traders to determine the next leg of a directional move.
Technical levels to watch
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