NZD/USD bounces off lows, upside remains capped amid a modest USD strength
- Renewed USD strength prompted some intraday selling around NZD/USD on Tuesday.
- Rallying US bond yields turned out to be a key factor that acted as a tailwind for the buck.
- The prevalent risk-on mood helped limit any further losses for the perceived riskier kiwi.
The NZD/USD pair around 20-25 pips from daily swing lows and was last seen trading in the neutral territory, near the 0.7130 region during the early European session.
The pair witnessed some selling following an early uptick to the 0.7150-55 area and retreated further from the highest level since June 11, touched in reaction to Friday's dismal headline NFP print. A strong follow-through uptick in the US Treasury bond yields acted as a tailwind for the US dollar. This, in turn, was seen as a key factor that exerted some intraday pressure on the NZD/USD pair.
The closely-watched US monthly jobs report showed that the economy added the fewest jobs in seven months during August. However, additional details kept alive hopes for an imminent Fed taper announcement. Investors now seem convinced that the Fed will begin rolling back its massive pandemic-era stimulus in November. This, in turn, pushed the yield on the benchmark 10-year US government bond back closer to the 1.35% threshold and continued lending some support to the greenback.
That said, the prevalent risk-on environment helped limit the downside for the perceived riskier kiwi and assisted the NZD/USD pair to attract some buying in the vicinity of the 0.7100 mark. This makes it prudent to wait for some strong follow-through selling before confirming that the recent strong recovery from the 0.6800 neighbourhood or YTD lows has run out of steam. In the absence of any major market-moving economic data, the USD price dynamics will be looked upon for some trading impetus.
Technical level to watch