NZD/USD holds steady near weekly high, just below mid-0.6800s amid softer USD

• NZD/USD reversed softer NZ GDP-led early downtick and climbed to a fresh weekly high.
• The risk-on mood undermined the safe-haven USD and benefitted the perceived riskier kiwi.
• The Fed’s hawkish outlook should limit losses for the buck and cap the upside for the major.

The NZD/USD pair traded with a mild positive bias heading into the European session and was last seen hovering near the weekly high, just below mid-0.6800s.

The pair edged lower during the early part of the trading on Thursday after Statistics New Zealand announced that the economy expanded by 3.0% in Q4 2021 as against 3.2% expected. This, however, marked strong rebound from the 3.6% contraction reported in the previous quarter. Apart from this, modest US dollar weakness assisted the NZD/USD to attract some dip-buying around the 0.6820 region.

Investors remain optimistic about the possibility of a diplomatic solution to end the war in Ukraine. In fact, Russian Foreign Minister Sergey Lavrov said that there were hopes for compromises and some formulations of agreements with Ukraine are close to being agreed. This underpinned the risk sentiment, which continued weighing on the safe-haven buck and benefitted the perceived riskier kiwi.

Apart from this, retreating US Treasury bond yields turned out to be another factor that kept the USD bulls on the defensive. That said, the fact that the Fed on Wednesday hinted to adopt a more aggressive policy response to combat high inflation should act as a tailwind for the buck. The so-called dot plot indicated that the Fed could raise interest rates at all the six remaining meetings in 2022.

This, in turn, held back traders from placing aggressive bullish bets around the NZD/USD pair and kept a lid on any further gains, at least for the time being. Nevertheless, the major, so far, has managed to maintain its bid tone for the third successive day and remains at the mercy of the USD price dynamics. Traders now look forward to the US macro releases for some short-term opportunities.

Thursday's US economic docket features the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and Industrial Production data, due later during the early North American session. Apart from this, fresh development surrounding the Russia-Ukraine saga will drive the broader market risk sentiment and influence the USD price dynamics, providing some impetus to the NZD/USD pair.

Technical levels to watch