NZD/USD moves back above 0.7000 mark for the first time since November 2021

• NZD/USD gained traction for the second successive day and shot to a fresh YTD high on Tuesday.
• The uncertainty over Ukraine underpinned commodities and benefitted the resources-linked kiwi.
• Signs of stability in the equity markets undermined the safe-haven USD and remained supportive.

The NZD/USD pair climbed to a fresh YTD top during the early part of the European session and is now looking to extend the momentum beyond the 0.7000 psychological mark.

The pair build on the overnight goodish rebound from the very important 200-day SMA and gains strong follow-through traction for the second successive day on Tuesday. The prospect of more Western sanctions on Russia over its alleged war crimes in Ukraine continued acting as a tailwind for commodity prices. This, in turn, was seen as a key factor that benefitted resources-linked currencies, including the kiwi.

On the other hand, signs of stability in the equity markets dented demand for traditional safe-haven assets and failed to assist the US dollar to capitalize on its gains recorded over the past three days. This provided an additional boost to the NZD/USD pair and contributed to the ongoing momentum to the highest level since November 2021. That said, a combination of factors should limit the USD losses and cap the major.

The market sentiment remains fragile amid the prospect of more Western sanctions on Russia over its alleged war crimes in the Ukrainian town of Bucha. Apart from this, growing acceptance that the Fed would adopt a more aggressive policy stance to rein in inflationary pressures should act as a tailwind for the greenback. In fact, the markets have been pricing in a 100 bps Fed rate hike move over the next two meetings.

The hawkish Fed expectations remained supportive of elevated US Treasury bond yields, which supports prospects for the emergence of some USD dip-buying. The underlying bullish sentiment surrounding the buck, however, did little to hinder the NZD/USD pair momentum as traders look forward to the US ISM Services PMI for a fresh impetus. That said, the key focus will remain on the FOMC minutes, due for release on Wednesday.

Technical levels to watch