NZD/USD trims a part of RBNZ-inspired gains, still well bid around 0.7000 mark
- RBNZ’s hawkish surprise prompted some short-covering around NZD/USD on Wednesday.
- COVID-19 jitters weighed on investors’ sentiment and held bulls from placing fresh bets.
- Hawkish Fed expectations underpinned the USD and collaborated to cap gains for the pair.
The NZD/USD pair trimmed a part of hawkish RBNZ-inspired gains and has now retreated around 30-35 pips from one-week tops. The pair was last seen hovering near the key 0.7000 psychological mark, still up over 0.70% for the day.
The pair witnessed some short-covering move on Wednesday after the Reserve Bank of New Zealand (RBNZ) surprised investors and indicated that it will halt bond buying under the LSAP program by July 23. This, along with a subdued US dollar demand, pushed the NZD/USD pair to an intraday high level of 0.7031.
As investors digested the RBNZ's policy update, the prevalent cautious mood around the equity markets held traders from placing aggressive bets around the perceived riskier kiwi. Investors remain worried about the spread of the highly contagious Delta variant of the coronavirus, which took its toll on the risk sentiment.
Apart from this, expectations that the Fed would tighten its monetary policy sooner than anticipated acted as a tailwind for the greenback. The market expectations were reinforced by Tuesday's hotter-than-expected US consumer inflation figures. This was seen as another factor that capped gains for the NZD/USD pair.
Hence, the key focus will remain on Fed Chair Jerome Powell's congressional testimony on Wednesday and Thursday. Powell's remarks on the latest inflation figures should influence market expectations about the Fed's policy outlook. This will drive the USD in the near term and provide a fresh directional impetus to the NZD/USD pair.
Technical levels to watch
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
