NZD/USD struggles to gain any meaningful traction, steady below mid-0.6900s

• NZD/USD reversed an intraday dip to the 0.6925 region amid a modest USD weakness.
• Hawkish Fed expectations should help limit the USD losses and cap the upside for the pair.
• The risk-off mood might hold bulls from placing fresh bets around the perceived riskier kiwi.

The NZD/USD pair bounced over 25 pips from daily lows, albeit lacked any follow-through buying beyond mid-0.6900s.

Following the previous day's pullback from multi-day tops, the NZD/USD pair attracted some dip-buying near the 0.6925 region on Tuesday and was supported by a modest US dollar weakness. That said, a combination of factors held bulls from placing aggressive bets and kept a lid on any meaningful upside for the pair, at least for the time being.

In the absence of any fresh fundamental catalyst, prospects for an early policy tightening by the Fed should continue to act as a tailwind for the greenback. Despite Friday's disappointing headline NFP print for September, investors seem convinced that the Fed will begin rolling back its massive pandemic-era stimulus as soon as November.

The markets might have also started pricing in the possibility of an interest rate hike in 2022 amid worries that the recent surge in crude oil/energy prices will stoke inflation. Apart from this, the risk-off impulse in the markets could further benefit the safe-haven greenback and cap any further gains for the perceived riskier kiwi.

Worries of a faster than expected rise in inflation and signs of a slowdown in the global economic recovery have been fueling concerns about stagflation. This, along with the contagion risks from China Evergrande's debt crisis, took its toll on the global risk sentiment, which was evident from a corrective pullback in the equity markets.

Even from a technical perspective, the NZD/USD pair has been oscillating in a familiar trading range over the past one week or so. This further makes it prudent to wait for a sustained break in either direction before placing aggressive bets amid a relatively thin US economic docket, featuring the release of August JOLTS Job Openings data.

Technical levels to watch