- NZD/USD ended a two-day losing streak on Tuesday with some positive momentum.
- Bullish sentiment in the markets provided a tailwind for the riskier Kiwi.
- Intraday buying was encouraged by weak dollar demand, although the lack of liquidity warrants caution.
During the early European session, the NZD/USD price hovered around the daily high of 0.6810. The price looks vulnerable to fall further.
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On Tuesday, the NZD/USD pair broke a two-day losing streak and made multiple purchases. The perceived riskier Kiwi has largely benefited from the underlying bullish sentiment, represented by generally positive sentiment in the equity markets. Furthermore, the weak development of the US dollar gave a big boost.
Investors are bullish about reports that the new COVID-19 strain could be less severe than the previous Delta variant. The continued increase in Omicron cases has also been linked to fewer hospital admissions and alleviated concerns about the economic impact of the infection. By falling US Treasury bond yields, dollar bulls have been forced into a defensive stance.
Despite this, the Fed’s restrictive forecast should be a tailwind for the dollar and prevent further growth in the NZD/USD pair. Federal Reserve officials expect to raise the Fed’s key interest rate at least three times over the next year. We call this the scatter plot. In addition, a lack of liquidity in markets near the end of the year may deter traders from placing aggressive directional bets.
Given the lack of macro data on market movements, in this case, it would be prudent to wait until there is strong follow-up buying before making any further preparations. The Richmond Manufacturing Index will be released as part of the US economic report, but it may not offer much direction. Consequently, the NZD/USD pair is subject to market sentiment and dollar momentum.
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NZD/USD price technical analysis: Weakness prevails
The NZD/USD price looks weak as it failed to find acceptance above 20-period SMA on the 4-hour chart. The pair may further slip below 0.6800 and test the confluence of 50-period and 100-period SMAs around 0.6770-80.
On the upside, the pair remains capped by the supply zone o 0.6830-40. However, breaking the level may open doors to 0.6900 area.
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