• NZD/USD attracted some dip-buying on Tuesday and staged a modest bounce from two-week lows.
  • A modest intraday USD pullback was seen as a key factor that extended some support to the major.
  • COVID-19 woes, expectations for an imminent Fed tapering move might cap any meaningful upside.

The NZD/USD pair recovered over 25 pips from two-week lows touched this Wednesday and climbed back closer to the 0.7100 mark during the early European session.

The pair found some support near the 0.7075-70 region on Wednesday and stalled the overnight pullback from the post-US CPI swing highs to mid-0.7100s. Despite rebounding US Treasury bond yields, the US dollar struggled to preserve/capitalize on its modest intraday gains. This, in turn, was seen as a key factor that assisted the NZD/USD pair to attract fresh buying at lower levels.

That said, any meaningful upside still seems elusive amid expectations for an imminent Fed taper announcement later this year. The sofer US CPI report released on Tuesday suggested that the big surge in inflation this year may have peaked and eased fears for an earlier tapering by the Fed. Investors, however, seem convinced that the Fed would begin rolling back its pandemic-era stimulus in 2021. This should act as a tailwind for the greenback and cap gains for the NZD/USD pair.

Apart from this, worries about the fast-spreading Delta variant and a global economic slowdown might further hold bulls from placing aggressive bets around the perceived riskier kiwi. The market concerns were further fueled by Wednesday’s disappointing Chinese macro data, which underscored recent signs of slackening economic momentum in the world’s second-largest economy. Hence, it will be prudent to wait for some strong follow-through buying before positioning for any further gains.

Market participants now look forward to the US economic docket, featuring the releases of the Empire State Manufacturing Index, Industrial Production figures and Capacity Utilization Rate. This, along with the US bond yields, will influence the USD later during the early North American session. Traders might further take cues from the broader market risk sentiment to grab some short-term opportunities around the NZD/USD pair.

Technical levels to watch