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  • NZD/USD staged a modest bounce from multi-month lows amid a modest USD pullback.
  • The risk-on mood prompted USD profit-taking and benefitted the perceived riskier kiwi.
  • Any meaningful recovery seems elusive, warranting caution for aggressive bullish traders.

The NZD/USD pair climbed to fresh session tops, around the 0.6980-85 region in the last hour and has now recovered a major part of the overnight losses to four-month lows.

The pair witnessed some heavy selling through the first half of the trading action this week and was pressured by a combination of factors. The New Zealand government on Tuesday announced a series of measures to cool the housing market. The move eased pressure on the Reserve Bank of New Zealand (RBNZ) to raise rates has diminished, which weighed heavily on the New Zealand dollar.

On the other hand, the US dollar remained well supported by the prospects for a relatively faster US economic recovery from the pandemic, bolstered by the passage of a massive stimulus package. This was seen as another factor that contributed to the NZD/USD pair’s steep intra-week decline back below the key 0.7000 psychological mark – to the lowest level since late-November.

Meanwhile, a positive start of trading in the US equity futures helped ease the bearish pressure and assisted the NZD/USD pair to stall the downward trajectory near mid-0.6900s, at least for now. The global risk sentiment got a minor lift after updated US trial results showed that the Oxford/AstraZeneca coronavirus vaccine was 76% effective at preventing symptomatic illness.

The upbeat market mood prompted some profit-taking around the safe-haven US dollar and extended some support to the perceived riskier kiwi. That said, growing concerns about the third wave of COVID-19 infections in Europe and keep a lid on any major risk-on rally. This might hold bulls from placing aggressive around the NZD/USD pair and cap the upside.

Hence, it will be prudent to wait for some strong follow-through buying before positioning for any further appreciating move. Market participants now look forward to the release of the final Q4 US GDP report for a fresh impetus. This, along with scheduled speeches by a slew of FOMC member, might influence the USD and produce some trading opportunities around the NZD/USD pair.

Technical levels to watch