NZD/USD moves back above mid-0.7000s, closer to multi-week tops set on Tuesday

The NZD/USD pair edged higher through the early European session and was last seen trading around the 0.7055-60 region, just below multi-week tops touched in the previous day.

Following the previous day's modest pullback from the 0.7070 area, the NZD/USD pair regained positive traction on Wednesday and seemed rather unaffected by disappointing Chinese Manufacturing PMI. The prevalent risk-on environment – as depicted by a generally positive tone around the equity markets – was seen as a key factor that benefitted the perceived riskier kiwi.

However, a modest US dollar strength might hold traders from placing any aggressive bets and cap any further gains for the NZD/USD pair, at least for the time being. The overnight goodish rebound in the US Treasury bond yields, which extended through the first half of the trading action on Wednesday, helped revive the USD demand. This could act as a headwind for the major.

Meanwhile, uncertainty over the Fed's tapering plan and fading hopes for an early lift-off might keep a lid on any meaningful upside for the greenback. Last Friday, the Fed Chair Jerome Powell fell short of offering any clues on when the US central bank will begin rolling back its pandemic-era stimulus. Powell also reassured that the Fed is in no hurry to raise interest rates.

The fundamental backdrop supports prospects for an extension of the NZD/USD pair's recent strong recovery move from the vicinity of the 0.6800 round-figure mark, or YTD lows touched on August 20. That said, investors might still prefer to wait on the sidelines ahead of Friday's release of the closely-watched US monthly jobs data – popularly known as NFP.

In the meantime, traders might take cues from the US economic docket – highlighting the release of the ADP report on private-sector employment and ISM Manufacturing PMI. This, along with the US bond yields, will influence the USD price dynamics. Apart from this, the broader market risk sentiment might further provide some impetus to the NZD/USD pair.

Technical levels to watch