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  • NZD/USD witnessed some fresh selling on Tuesday and erased the overnight gains.
  • The downbeat market mood benefitted the safe-haven USD and weighed on the kiwi.

The NZD/USD pair edged lower through the Asian session and has now eroded a major part of the overnight gains. The pair was last seen hovering near the lower end of its daily trading range, around the 0.7175 region.

Monday’s disappointing German data fueled worries about the potential economic fallout from the imposition of strict coronavirus restrictions and dampened the market mood. Adding to this, lingering concerns about potential roadblocks to the US President Joe Biden’s $1.9 trillion stimulus plan further took its toll on the global risk sentiment.

Apart from this, escalating tensions between the US and China further soured investors’ appetite for perceived riskier assets. It is worth reporting that a US aircraft carrier group entered the South China Sea over the weekend. The latter was not happy with the move and announced that it will conduct military exercises in the South China Sea this week.

This, in turn, led to a modest pullback in the equity markets, which forced investors to take refuge in the safe-haven US dollar. This, in turn, was seen as one of the key factors that drove flows away from the perceived riskier kiwi and prompted some selling around the NZD/USD pair during the first part of the trading action on Tuesday.

Despite the downtick, the NZD/USD pair remained well within a three-day-old trading range as investors now seemed reluctant to place aggressive bets ahead of this week’s key event/data risk. The FOMC will announce its monetary policy decision on Wednesday. This will be followed by the release of the Advance Q4 US GDP report on Thursday.

This, along with the US stimulus headlines, will influence the USD price dynamics and provide a fresh directional impetus to the NZD/USD pair. In the meantime, developments surrounding the coronavirus saga will play a dominant role in driving the broader market risk sentiment. This, in turn, might assist traders to grab some trading opportunities.

Technical levels to watch