NZD/USD adds to intraday recovery gains, climbs to mid-0.7000s

The NZD/USD pair built on its goodish intraday bounce from three-week lows and climbed back above mid-0.7000s during the first half of the European session.

The pair found a decent support near the 50-day SMA, around the key 0.7000 psychological mark and staged a goodish rebound on Tuesday, snapping three consecutive days of the losing streak. The risk-on impulse in the markets undermined the safe-haven US dollar, which, in turn, was seen as a key factor that benefitted the perceived riskier kiwi.

That said, fears about the spillover risk from China Evergrande's troubles should keep a lid on the optimism. Apart from this, expectations for an imminent Fed taper announcement and a goodish pickup in the US Treasury bond yields should act as a tailwind for the greenback. This, in turn, might keep a lid on any further gains for the NZD/USD pair.

Investors might also refrain from placing aggressive bets, rather prefer to wait for a fresh catalyst from the outcome of a two-day FOMC meeting starting later this Tuesday. This makes it prudent to wait for some follow-through buying before confirming that the recent pullback from the highest level since June 11 has run its course.

The Fed is scheduled to announce its policy decision during the US session on Wednesday and investors will look for clues about the likely timing of the tapering plan. Apart from this, the latest economic projections/dot plot will play a key role in influencing the USD price dynamics and help determine the near-term trajectory for the NZD/USD pair.

In the meantime, traders might continue to take cues from the broader market risk sentiment in order to grab some short-term opportunities. Tuesday's relatively thin US economic docket – featuring the second-tier release of Building Permits and Housing Starts – might do little to provide any meaningful impetus to the NZD/USD pair.

Technical levels to watch