NZD/USD bounces off multi-day lows, still in the red around 0.6700 mark

• NZD/USD extended the previous day’s post-FOMC retracement slide from two-week tops.
• The USD remained well supported by not so dovish Fed and exerted some heavy pressure.
• Better-than-expected NZD GDP extended some support to the kiwi and helped limit losses.

The NZD/USD pair dropped to multi-day lows in the last hour, albeit quickly bounced few pips thereafter and was last seen hovering around the 0.6700 round-figure mark.

The pair witnessed some heavy selling on Thursday, snapping four consecutive days of the winning streak, and extended the previous day’s post-FOMC retracement slide from the 0.6760 region, or two-week tops. As was widely expected, the Fed kept federal funds rate unchanged at 0-0.25% and indicated that the benchmark rate will stay close to zero at least through 2023.

However, the fact that the Fed gave no indication of additional stimulus, coupled with an upbeat assessment of the economic recovery prompted some aggressive short-covering move around the US dollar. Apart from this, a turnaround in the global risk sentiment further benefitted the greenback’s safe-haven status and drove flows away from the perceived riskier kiwi.

Meanwhile, the anti-risk flow led to a fresh leg down in the US Treasury bond yields, which kept a lid on any further USD gains. This coupled with less worse than expected NZ GDP print for the second quarter of 2020, extended some support to the kiwi and helped limit deeper losses for the NZD/USD pair, at least for the time being.

In fact, the domestic economy contracted by 12.4% YoY rate during the April-June quarter as compared to the consensus estimates pointing to a reading of -13.3. Additionally, the previous quarter’s reading was also revised higher to show a 0.2% YoY and 1.6% QoQ contraction as against the previous -0.1% and -1.4%, respectively.

Market participants now look forward to the US economic docket, highlighting the release of Philly Fed Manufacturing Index, Initial Weekly Jobless Claims and housing market data – Building Permits and Housing Starts. This might influence the USD price dynamics and produce some short-term trading opportunities later during the early North American session.

Technical levels to watch