NZD/USD struggles to capitalize on modest bounce from YTD low, holds steady near 0.6725

The NZD/USD pair held steady around the 0.6725 area through the early European session, albeit seemed struggling to capitalize on its intraday bounce from a fresh YTD low.

The pair once again managed to attract some buying near the 0.6700 round-figure mark on Tuesday and for now, seems to have snapped two consecutive days of the losing streak. A solid recovery in the global risk sentiment – as depicted by a positive turnaround in the equity markets – was seen as a key factor that benefitted the perceived riskier kiwi. Apart from this, subdued US dollar price action extended additional support to the NZD/USD pair.

That said, the Fed's hawkish outlook, along with an uptick in the US Treasury bond yields acted as a tailwind for the greenback. It is worth recalling that the Fed announced last Wednesday that it would double the pace of tapering to $30 billion per month. Moreover, the so-called dot plot indicated that officials expect to raise the fed funds rate at least three times next year. Apart from this, COVID-19 jitters capped the upside for the NZD/USD pair.

Investors remain concerned about the potential economic fallout from the rapid spread of the Omicron coronavirus variant. Apart from this, a fatal blow to US President Joe Biden's massive $1.75 trillion social spendings and climate bill might keep a lid on any optimistic move in the markets. This, in turn, warrants some caution before confirming that the NZD/USD pair has bottomed out in the near term and positioning for any further appreciating move.

Investors might also be reluctant to place aggressive bets amid relatively thin liquidity conditions heading into the end-of-year holiday season and absent relevant market moving economic releases. That said, the US bond yields could influence the USD price dynamics and provide some impetus to the NZD/USD pair. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities around the major.

Technical levels to watch