NZD/USD recovers from two-month lows, upside seems limited ahead of FOMC

A subdued USD demand prompted some short-covering move around NZD/USD on Wednesday.
Expectations for a less dovish Fed might act as a tailwind for the buck and cap gains for the pair.
Investors now look forward to the much-awaited FOMC decision for a fresh directional impetus.

Haresh Menghani FXStreet

The NZD/USD pair maintained its bid tone through the early European session and was last seen hovering near the top end of its daily trading range, just below mid-0.7100s.

Having found some support near the 0.7100 mark, the NZD/USD pair regained positive traction on Wednesday and has now reversed the previous day's negative move to two-month lows. The uptick lacked any obvious fundamental catalyst and could be solely attributed to some short-covering move amid a subdued US dollar demand.

A generally softer tone surrounding the US Treasury bond yields failed to assist the greenback to capitalize on the previous day's positive move to one-month tops. That said, expectations of a slightly less dovish Fed might help put a tentative floor under the greenback and cap any further gains for the NZD/USD pair.

Investors might have started pricing in the prospects for an earlier stimulus withdrawal amid worries about rising inflationary pressure. The concerns were further fueled by Tuesday's hotter-than-expected US Producer Price Index. Hence, the key focus will remain on the highly-anticipated FOMC decision, due later during the US session.

Investors will be closely watching for clues about a possible change in the policy outlook and if members have started the discussion to taper the current $120 billion in monthly bond purchases. This will play a key role in driving the USD in the near-term and provide a fresh directional impetus to the NZD/USD pair.

Heading into the key event risk, investors seemed reluctant to take excessive risk. This was evident from a cautious mood around the equity markets, which should further collaborate to cap gains for the perceived riskier kiwi. Hence, it will be prudent to wait for some strong follow-through buying before placing fresh bullish bets.

Technical levels to watch

NZD/USD

Overview
Today last price	0.7147
Today Daily Change	0.0026
Today Daily Change %	0.37
Today daily open	0.7121

Trends
Daily SMA20	0.7208
Daily SMA50	0.719
Daily SMA100	0.7181
Daily SMA200	0.7035

Levels
Previous Daily High	0.7161
Previous Daily Low	0.7105
Previous Weekly High	0.7244
Previous Weekly Low	0.7115
Previous Monthly High	0.7317
Previous Monthly Low	0.7115
Daily Fibonacci 38.2%	0.7126
Daily Fibonacci 61.8%	0.714
Daily Pivot Point S1	0.7097
Daily Pivot Point S2	0.7073
Daily Pivot Point S3	0.7041
Daily Pivot Point R1	0.7153
Daily Pivot Point R2	0.7185
Daily Pivot Point R3	0.7209

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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