NZD/USD struggles for direction, flat-lined below mid-0.7100s

The NZD/USD pair seesawed between tepid gains/minor losses through the early European session and was last seen trading in the neutral territory, just below mid-0.7100s.

A combination of diverging forces failed to assist the NZD/USD pair to capitalize on the previous day's modest gains, instead led to a subdued/range-bound price action on Tuesday. The underlying bullish tone – as depicted by a generally positive tone around the equity markets – acted as a tailwind for the perceived riskier kiwi.

On the other hand, a fresh leg down in the US Treasury bond yields exerted some downward pressure on the US dollar. This, in turn, was seen as another factor that extended some support to the NZD/USD pair. That said, expectations of a slightly less dovish Fed helped put a tentative floor under the greenback and capped gains for the major.

The markets now seem worried about rising inflationary pressures and might have started pricing in the prospects for an earlier stimulus withdrawal. Hence, the key focus will remain on the FOMC policy decision on Wednesday. This might further hold traders from placing any aggressive bets and limit any meaningful movement in either direction.

Heading into the key event risk, traders on Tuesday might take cues from a slew of important US macro data. The US economic docket highlights the release of Retail Sales for May, Producer Price Index (PPI), Empire State Manufacturing Index and Industrial Production data. This, along with the US bond yields, will influence the USD price dynamics.

Technical levels to watch